European Stocks Experience Decline Following Disappointing Manufacturing PMI Numbers.
In Tuesday’s trading session, European stock markets witnessed a decline as investors digested crucial company reports and discouraged factory activity data, causing them to relinquish some of the gains achieved in the previous month.
UK’s FTSE 100 Trades Lower
The UK’s FTSE 100 experienced a 0.2% drop, contributing to the overall market decline in Europe.
Challenges Faced by the European Manufacturing Industry
Despite the pan-European Stoxx 600 recording a notable 2% gain in July, the major European indices demonstrated robust growth, thanks to positive indicators that European consumer inflation had reached its peak.
However, the European Central Bank’s implementation of strict monetary policies to tackle inflation has had a significant impact on the regional economy. This was evidenced by the release of manufacturing Purchasing Managers’ Index (PMI) statistics from the eurozone and its member countries, which revealed the extent of the challenges faced by the European manufacturing sector.
Spain, Italy, and Germany’s PMI Performance
Spain was the first to release its manufacturing PMI data, which unfortunately further slipped into the contraction zone. Italy, despite showing slight improvement, remained well below the 50-point threshold that distinguishes expansion from contraction. The most significant disappointment came from Germany, the largest economy in the eurozone, as its manufacturing PMI dropped from 40.6 in June to 38.8 in July.
Inflation and Retail Data from the UK
On a different front, data from the British Retail Consortium issued early on Tuesday, indicated a decrease in prices in UK stores for the first time in two years compared to June. Additionally, annual inflation in the UK decreased to 7.6% from 8.4% in June.
Bank of England’s Response
The Bank of England, striving to combat the highest inflation rate among major industrialized nations, is scheduled to convene on Thursday. The bank is widely expected to raise interest rates for the 14th consecutive meeting.
FTSE 100 Technical Analysis Daily Chart
FTSE 100’s Trading Trend
FTSE 100 is currently trading in an upward channel, indicating positive momentum in the market.
Moving Averages and Trend Indicators
The FTSE 100 is presently trading above its 20 and 50 Simple Moving Averages (SMA), suggesting a bullish outlook. The Relative Strength Index (RSI) is in the buying zone, further supporting the bullish sentiment, while the Stochastic oscillator signals a neutral trend.
Key Levels to Watch
Immediate resistance for FTSE 100 is at 7711.1, while its immediate support level stands at 7673.7.
How to Trade FTSE 100 This Week
Following a strong upward move, the FTSE 100 underwent a reversal and started trading lower. However, it found support at a specific level, leading to a climb in price from that point. The FTSE 100 is currently approaching a significant resistance level, and if this resistance is breached, further gains might be expected.
Trade Suggestion
For traders looking to capitalize on the FTSE 100’s potential upward movement, a potential trade suggestion is to enter at 7734.5 with a target of 7804.8 and a stop loss at 7683.0.
Conclusion
European stock markets faced a decline due to disappointing manufacturing PMI numbers, affecting investor sentiment. Spain, Italy, and Germany’s manufacturing sectors encountered challenges, leading to concerns about the regional economy. Additionally, the Bank of England’s response to inflation will be closely watched by market participants. Meanwhile, the FTSE 100 displayed an upward trading trend, and traders are keeping a close eye on the significant resistance level for potential trading opportunities.
Frequently Asked Questions (FAQs)
Q: Why did European stocks decline on Tuesday?
A: European stocks declined on Tuesday due to disappointing manufacturing PMI numbers and the impact of strict monetary policies on the regional economy.
Q: What were the major contributors to the decline in European stocks?
A: The major contributors to the decline in European stocks were the poor performance of manufacturing PMI in several European countries and the decrease in UK store prices.
Q: Which European country experienced the biggest disappointment in manufacturing PMI?
A: Germany, the largest economy in the eurozone, experienced the most significant disappointment in manufacturing PMI, dropping from 40.6 in June to 38.8 in July.
Q: How did the Bank of England respond to inflation challenges?
A: The Bank of England is anticipated to raise interest rates for the 14th consecutive meeting as a response to combat the highest inflation rate among major industrialized nations.
Q: What is the trading trend of FTSE 100 currently?
A: FTSE 100 is presently trading in an upward channel, indicating a positive trend in the market.
Q: What are the key levels to watch for FTSE 100?
A: The immediate resistance level for FTSE 100 is at 7711.1, while the immediate support level is at 7673.7.