EU Stocks Could Rebound Despite Recession Concerns

Earlier, the euro and European stock markets sunk after purchasing managers in the services and particularly manufacturing sectors reported sharply deteriorating conditions for March.

Earlier, the euro and European stock markets sunk after purchasing managers in the services and particularly manufacturing sectors reported sharply deteriorating conditions for March. The bleak PMI numbers raised recessionary concerns, causing investors to pile into haven government debt. As a result, the yield on the German 10-year debt fell to 0% for the first time since 2016.

Ironically, the lower yields and a weaker euro could actually help to boost the appeal of some higher-yielding European stocks. So, we may see a rebound in the major EU indices in the not-too-distant future, possibly as early as this afternoon. In other words, we could see the return of “bad news is good news” for stocks, as investors push their expectations over an ECB rate increase further out amid deteriorating Eurozone data.

In fact, Euro Stoxx 50 index is currently hovering around a key technical support area between 3335 and 3350, following this week’s retracement from the 2019 high of 3422. This 3335-3350 area is where several technical indicators converge:

  • backside of the medium-term broken bearish trend line
  • short-term bullish trend line
  • 21-day exponential moving average (which has a positive slope)
  • Base of the previous breakout

For all the above considerations, I wouldn’t be surprised if the Euro Stoxx 50 index, and European markets in general, were to bounce back, despite growing worries over a recession in the eurozone. However, if the major indices begin to breakdown meaningfully, then we will have to put our bullish views on hold. For this particular index, the line in the sand is around 3270/90 area, the March lows.

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