DAX, FTSE 100 Forecast: Two trades to watch

DAX rises as manufacturing activity improves

• German manufacturing PMI is 49.8 in August
• Eurozone Manufacturing PMI rises to 50.5
• DAX holds 24k support

The DAX is edging higher on Monday, along with its European peers, as the US appeals court ruled on Friday that most of U.S. President Trump's tariffs are illegal, and the market weighs up the latest PMI data.

On Friday, the US appeals court ruled that Trump's tariffs are illegal, although it allowed them to remain in effect until mid-October to permit further appeals. Trump has vowed to take the case to the Supreme Court, with the administration preparing plans to press ahead with tariffs. However, this is unlikely to result in these levies being removed. Trump will have ways around this and is not going to back down.

On the data front, the German final manufacturing PMI came in at 49.8, a downward revision from the preliminary reading of 49.9, suggesting encouraging developments for the German manufacturing sector. Output has increased in six straight months, and firms have received new orders for three months in a row. This is some welcome good news after German retail sales and consumer sentiment fell last week.

Eurozone manufacturing activity expanded in August for the first time since mid-2022, driven by a surge in domestic demand and output. The PMI rose to 50.7. While Germany missed expansion, Greece and Spain saw strong growth.

Growth showing signs of slowly ramping up could keep the ECB from cutting rates. The market is pricing in 24 basis points worth of cuts before the end of the year.

Trading today maybe light across the day going to the US Labour Day holiday.

DAX forecast – technical analysis

After running into resistance at 24,540, the DAX dropped lower, falling below the 50 SMA, the multi-month rising trendline, and is testing the 24k round number, the lower level of a familiar range. The RSI is below 50, keeping sellers hopeful of further losses.

A break below 24k opens the door to a deeper selloff towards 23,600, the 100 SMA, and 23,400, the August low.

Should the 24k support hold, buyers could look to rise back above the rising trendline and towards 24,50 and fresh record highs.

FTSE 100 starts September higher despite weaker manufacturing activity

• Manufacturing PMI falls to 47 in August from 48 in July
• UK banks steady after Friday’s selloff
• FTSE has fallen from a record high to 9200

The FTSE 100 is opening modestly higher in September after falling over 1.4% last week, despite signs of weakness in the manufacturing data.

Five months decreased to 47 in August, down from a six-month high of 48 in July. This was weaker than the preliminary reading of 47.3 and for the 11th consecutive month was in contractory territory below the 50 level. The data reveals the struggles faced by the UK manufacturing sector, with new orders declining due to concerns about trade tensions abroad and tax increases at home.

The employment component of the report showed that firms could cut jobs for a tenth straight month, potentially adding to concerns of some BoE policymakers who fear a sharp slowdown in the labour market. However, input price inflation rose at its fastest pace since May, partly due to April's tax increase, which increases the burden on employers and is being passed through to clients.

UK banks are heading higher after the steep decline on Friday following a report from a think tank recommending a new tax on lenders as a possible way for Finance Minister Rachel Reeves to raise revenue. Spooked by the prospect of a windfall tax, NatWest Group closed almost 5% lower, and Lloyds down 3.3%. The market is reassessing the likelihood of this coming into play in this form, and the fact that banks are up suggests low expectation of this tax revenue stream being announced.

Chance of the exchequer Rachel Reeves is widely expected to raise taxes again in the autumn budget later this year. There could be growing caution heading towards the budget, which may keep sentiment subdued.

Today, the US is observing Labor Day, so volumes may be low throughout the day.

FTSE forecast - technical analysis

After rallying to a record high of 9360 on August 22, the FTSE 100 has fallen back to test 9200 support, the round number and multi-month rising trendline. The price remains within the rising channel with the uptrend still intact.

Should 9200 support hold, buyers will look to rebound towards 9360 and fresh record highs.

Should sellers break below 9200, this opens the door to 9075 and towards 8900, the March high. It would take a move below here to negate the medium-term uptrend.