Global stock markets have started the new week on an uneasy footing for the most part, although US technology sector was staging a recovery attempt. European equities have been firmly lower in this first half of Monday’s session, with the CAC 40 and IBEX among the biggest fallers as renewed political and fiscal concerns in France weigh on sentiment. The German DAX index was also down, while US indices had given up a good chunk of their sharp overnight gains, with the Dow futures turning negative, leading to a lower cash open. The Nasdaq and S&P 500 posted decent gains at the open after last week’s heavy losses, but the recovery looks fragile given the lingering pressure on technology stocks and growing doubts about the AI investment boom. With bond markets also signalling renewed concerns over inflation, with yields on the rise again, investors have plenty to worry about as the new week gets underway. As such, we maintain a cautious Nasdaq 100 outlook.
DAX outlook: European markets under pressure
The weakness in European equities have been the main theme so far today. Major indices opened firmly lower and stayed that way until the time of writing, with losses of around 1% or more. Here, it is France where the main concern lies. Violent protests over the weekend have added uncertainty to an already difficult political and fiscal backdrop, while the spread between French and German 10-year government bond yields has widened back towards 145 basis points.
That spread is worth watching. A move above 150 basis points would be an uncomfortable signal for risk sentiment, indicating that investors are demanding an even larger premium to hold French debt.
The bigger issue is not necessarily the protests themselves, but what growing public discontent could mean for the government’s ability to push through the fiscal reforms needed to address ballooning public debt.
Nasdaq 100 outlook: AI trade faces growing scrutiny
Last week’s pressure on technology stocks looks increasingly difficult to blame solely on higher Treasury yields. The hotter-than-expected US inflation, which revived expectations of further Federal Reserve rate hikes have kept pressure on risk assets
Investors are also increasingly focused on valuations, leverage and whether the enormous capital spending behind the artificial intelligence boom will generate sufficient returns.
We also saw stress in the credit markets last week, offering another warning sign. The cost of insuring against default among US technology companies reached eye-catching levels. Data-centre operators and other capital-intensive businesses that require huge amounts of funding and depend heavily on future revenue growth have been hit hard.
Higher-for-longer interest rates make that equation increasingly difficult. Last week’s latest inflation surprise and the continued rise in oil prices since, have raised the hurdle for an investment cycle that was already demanding enormous amounts of capital.
Technical Nasdaq 100 outlook and levels to watch
The Nasdaq 100 broke and close below its bearish trend line last week, thus providing a bear signal. Today’s recovery should therefore be viewed as a counter trend move until proven otherwise. The burden of proof is now with the bulls.
Key resistance was being tested at 29,600ish at the time of writing on our US Tech 100 index, which is based on the underlying Nasdaq 100 futures chart. This level was the base of the last blast off to record highs that ultimately failed to hold. Above here, the backside of the broken trend will come into focus followed by 30K level and then 30,370.
Meanwhile support is seen between 29,000 to 29,240 . This area was tested on Friday and again today. So far, it has held on both occasions. Break that and a larger correction could be the outcome.
DAX technical analysis
After a heavy sell-ff, the DAX was probing support near 25,200 zone. A trend line and prior resistance met here. Break below could expose the 200-day average for another test near 24,800-24,900 zone. Key resistance is seen between 25,500 to 25,800.
