is at an all-time high as it remains well positioned to benefit from the turn to cyclical performance. grows when mergers and acquisitions activities take center stage.
The DAX is at an all-time high as it remains well positioned to benefit from the shift to cyclical indices
European stocks opened moderately higher on Monday after the DAX index closed at another record high last week as investors turned their attention to a busy economic calendar and the start of earnings season.
The DAX is benefiting from the rotation of US technology companies into more attractive European cyclicals and industrials. This was also evident in the US exit, which outperformed in June and the first few sessions of July.
Investors are questioning whether the steady growth in AI popularity over the past two years can be sustained, especially as investors increasingly focus on whether record levels of capital spending on AI infrastructure will translate into earnings growth quickly enough to justify current valuations.
The DAX is well positioned in the current environment given its heavy weighting to industrials, manufacturers and financial companies, which are expected to benefit if global growth stabilizes and borrowing costs remain low. Such companies also trade at significantly lower valuations than U.S. tech stocks, making them an attractive play for those seeking higher value.
On the economic calendar, Germany surprised with growth potential, rising 1.9% month-on-month in May after falling 3.2% in April, comfortably beating expectations for 1.2% growth. The data shows that manufacturing demand may be starting to stabilize after a long period of weakness.
Attention will now turn to the eurozone, which is expected to grow 5.7% year-on-year in May, up from 4.9% previously. However, since data has since fallen sharply to pre-conflict levels, the data may have limited impact on the market as investors focus on improving inflation forecasts.
The euro zone is also expected to post modest monthly growth of 0.2% after falling 0.4% in April, another indicator of consumer demand across the bloc.
Recent dovish comments from ECB President Christine Lagarde, coupled with falling energy prices, have caused markets to lower expectations of further ECB rate hikes this year, providing further support to European equities.
Attention is also starting to shift to earnings season, which begins this week in the US with results from PepsiCo (NASDAQ:) and Delta Air Lines (NYSE:). Investors will be closely watching for signs that corporate earnings may justify higher stock prices.
DAX Forecast – Technical Analysis
The DAX extended its recovery from a low of 21,860 earlier this year and rose to a new record high of around 25,920.
The index continues to trade solidly above its 50-day and 200-day SMAs as well as its rising trendline, while the RSI remains positive without entering overbought territory, suggesting momentum remains supportive.
A break above 25,920 will expose the psychological 26,000 level and then turn attention to 26,500.
Initial support lies at 25,500, the January and May highs. Below is support near 25,200 and the psychological level of 25,000. A break below these levels will expose the rising trendline and 50-day SMA near 24,700.
FTSE 100 rises on mergers and acquisitions activity
The index opened slightly higher, tracking gains in European markets after the index recorded its second straight weekly gain and closed Friday at its highest level since early March.
Shares are rising after EasyJet (LON:) accepted a takeover bid from Castlelake, ending months of speculation surrounding the airline.
The fifth offer by the US investment firm follows a sharp fall in EasyJet’s share price earlier this year as sentiment was hit by higher fuel costs during the Middle East conflict and weaker travel demand. This weakness made the airline increasingly vulnerable to takeover interests.
Elsewhere, ITV has agreed to sell its media and entertainment business to Sky for £1.6 billion. The deal will create a larger UK-focused streaming and media platform that can more effectively compete with global rivals such as Netflix, YouTube and Prime Video.
For Sky owner Comcast, the acquisition will significantly expand its audience reach while strengthening its position in the UK advertising market at a time when traditional broadcasters continue to face structural challenges.
On the macro front, attention will turn to UK data, which is expected to improve marginally to 40.0 in June from 38.2 in May. While the index will remain well below the 50 level that separates expansion from contraction, any improvement would mean the pace of decline is beginning to slow.
FTSE Forecast – Technical Analysis
The FTSE 100 broke above its symmetrical triangle pattern, extending gains to a three-month high of around 10,700.
Momentum remains constructive with the RSI holding above 50.
A break above 10,700 would expose a record high near 10,950.
Initial support is seen at 10,560, the May high. Below is the 50-day SMA at 10,400. A break below 10,170 will create a lower low and expose the 200-day SMA near 10,100, where sellers can begin to regain control.
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