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Stocks Attempting to Recover

Global stock markets are seeing better demand on Thursday with indexes such as the DAX trading back up off their weekly lows. Comments from ECB’s Lagarde yesterday added to bearish sentiment among stock traders, fuelling a push lower in the DAX which traded down to its lowest levels since early December.
 

ECB: Inflation Fight Not Over Yet

Lagarde warned that the ECB’s fight against inflation was not yet over and explained that the market’s aggressive rate cut bets work against the bank. The ECB chief was seen pushing back against near-term rate cut expectations, signaling that expected cuts would likely come in summer rather than April though would of course be data dependent.
 

ECB Rates Pushback

The market has recently moved to price in the first ECB rate cut by April on the back of the continued fall in eurozone inflation. However, while Lagarde confirmed that the bank has indeed reached peak rates she was keen to stress that the bank must keep rates in restrictive territory for as long as possible. These comments come on the back of ECB’s Knot who said “The more easing the market has already done for us the less likely we’ll cut rates, the less likely we’ll add to it.”
 

Bearish Risks for Stocks

Looking ahead, should we see further pushback from the ECB this is likely to put fresh pressure on European stocks. With the Fed too pushing back against rate cut expectations and with UK inflation rising for the first time in 10 months last month, stocks look vulnerable to further near-term correction.
 

Technical Views

DAX

(Click on image to enlarge)

The correction lower from the 16997.55 level has seen the market trading back down to retest the broken summer 2023 highs around 16312.43. While this level holds, the focus is on further upside. Below here, however, focus turns to 15642.76 next, in line with bearish momentum studies readings. 

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