DAX, FTSE and S&P 500 forecast: Major indices bounce back as risk appetite improves

Following the recent weakness, we have seen a good recovery today in risk assets. Major stocks indices have all turned higher after a weaker start; Bitcoin has climbed well north of the $100K level, bouncing 4.5% from its overnight lows, while copper, antipodean dollars and yen crosses such as the EUR/JPY have also got a piece of the action. Before looking at the technical picture for the FTSE, DAX and S&P 500 forecast, I will discuss why stocks have bounced back and what to expect in the near-term outlook.

 

Analysis: Why have stocks bounced?

 

Well, there are many reasons behind today’s recovery in stock prices, and risk appetite as a whole. Firstly, it must be noted that many of these markets have bounced from key technical support areas. More on this later, but dip-buying thus continues to rule with a lack of any major bearish catalysts to weigh on risk appetite meaningfully. Investors are also expecting further rate cuts from major central banks, even if there was a bit of hawkish repricing of US interest rates following Powell’s comments at the FOMC presser last week. Still, easing of monetary policy is driving stocks higher, while the recent extension of a trade truce between the US and China means appetite for AI-related stocks remains strong, with earnings also largely being positive this reporting season.

 

The recovery comes after US index futures had initially fallen along with the European markets, before London led a stock market rebound. Markets had paused after the recent big gains without any fresh catalysts to drive sentiment. Traders looking for fresh reasons to justify the lofty valuations that have carried markets this far were not finding too many compelling reasons. But they don’t want to sell either, judging by market’s rebound. With dip-buying being a major theme in equity markets all this time, the downside has been limited after each pullback, and this could be yet another example.

 

Economic data boost for risk assets

 

Today we also had the latest private sector payrolls jobs report from the ADP, and this came in ahead of expectations at +42K instead of +32K expected. What’s more, the ISM services PMI came in well ahead of expectations, too, printing 52.4 vs. 50.7 eyed and 50.0 last. New orders and business activity grew strongly, according to the PMI, and crucially the employment component contracted at a slower pace compared to the previous month (48.2 vs. 47.2).

 

Eurozone data supports bullish DAX forecast

 

Today’s US data releases complement the stronger data from Europe released earlier, where the services PMI proved to be stronger than initially reported in the UK, Germany, Spain, Italy and Eurozone. All these economic regions recorded growth in the services sector, while the French slowdown was not as bad as had been reported initially. In yet more positive news, German factory orders and French industrial production both came out stronger too. With the Eurozone economy in a good place to borrow a phrase from the ECB, the DAX forecast remains bullish and we could finally see a run towards 25K in the week ahead, following a multi month consolidation phase

 

FTSE 100 forecast: BoE rate decision looms

 

Looking ahead, the Bank of England’s policy decision will be on Thursday, November 6 at 12:00 GMT.

 

The Bank faces a dilemma: to cut or to hold ahead of a key government budget on November 26, where the Chancellor is most likely to announce tax rises. UK CPI remained at 3.8% y/y in September against expectations of a rise to 4.0%, and core CPI fell to 3.5%. That caused traders to unwind their hawkish bets, and the pound fell while the FTSE hit repeated all-time highs. But ahead of the budget the BoE may hold rates at 4.00% and re-assess in December, where a cut appears more likely.  If the BoE signals a cut in December is forthcoming, this should boost the appeal of UK stocks and cement our bullish FTSE 100 forecast.

 

FTSE technical analysis

 

 

Among the major indices, the FTSE is showing relative strength as the index nears yet another record high, after peaking last week at 9790. We have seen big gains in shares of Burberry Group and BAT. The higher highs, minimal pullbacks and slope of all moving averages mean the path of least resistance remains to the upside. Thus, the FTSE 100 forecast is positive and we expect the index to climb further higher in the days ahead, with key short-term supports now seen around 9726, marking the hammer head from the day before, followed by 9,600 and finally 9,450.

 

DAX technical analysis

 

The false break down below the triangle pattern means the DAX has retained its bullish bias for now. Key resistance is at 24,000. A clean break above it could potentially lead to a breakout above the triangle now, which would immediately target 24,300 next. Above that resistance, the range highs between 24,650 to 24,770 will come into focus next, and then 25K should we clear that area.

 

 

S&P 500 technical analysis

 

Across the pond, the S&P 500 bounced right where it needed to: between 6716 to 6750, the prior breakout region.

 

 

The S&P 500 chart needs to hold above here to maintain a bullish bias. Resistance comes in at 6820 next. Clear that and a revisit of 6,900 could be on the cards. But should the selling resume, the next downside target is at around 6680.

 

 

Source for all charts used in this article: TradingView.com

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R