European stocks returned much of the gains made the day before, when everything rallied on the back of speculation that the Fed might ease rate hikes. US futures followed Europe lower, with gold and especially silver also falling sharply, with the dollar and yields making a comeback. The release of some disappointing European data and the big rebound in oil prices this week also rekindled concerns about the energy crisis and a long cold winter for Europe.
With OPEC+ likely to cut production sharply and may do so more in the future, this reminds the Biden administration that releasing oil from the SPR will only have a limited impact on oil prices and energy inflation, which means the Fed may have to continue cutting aggressively for longer. That equates to bad news for stocks.
Meanwhile, today’s German trade figures and Eurozone PMIs confirmed recession fears and the Euro fell accordingly, along with the DAX and other European stock indices.
After Monday’s final PMIs confirmed that the Eurozone manufacturing sector was contracting more than initially estimated, today’s final services PMIs also revealed a similar picture. The final services PMI for the Eurozone PMI was 48.8 from 48.9, thanks to the Spanish flash PMI falling below 50 to 48.5 and the downward revision from 45.5 to 45, 0 in Germany.
Furthermore, the latest trade figures from Germany paint a gloomy picture, with exports to other EU countries contracting, a further sign of a weakening European economy.
Today’s weakness comes after what had otherwise been a fairly positive start to the new week and quarter for stocks and other risk assets. Risk assets rallied at the start of the fourth quarter after weaker U.S. manufacturing and jobs data sparked speculation that the Fed could begin to pull back from a recent round of interest rate hikes earlier than expected. Additionally, we have seen companies like the Bank of England, Bank of Japan and the People’s Bank of China stepping in one way or another, while the Reserve Bank of Australia opted for a hike lower than expected.
But with Eurozone concerns reignited, major European indices like the DAX are now at risk of starting a fresh downtrend and that move may have started today:
The DAX hit resistance around 12600 and it reacted. The next downside target is the summer low found at 12385, below which there is nothing significant until Tuesday’s breakout base at 12274. And if that breaks, then it’s was over for the bulls, as would a revisit of this month’s low. then becomes a strong possibility.
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