European equities close broadly lower on Wednesday as rate cut bets evaporate

• European indexes saw declines across the board in the mid-week.
• Inflation, policymaker talking points continue to flummox rate cut hopes.
• Stubborn inflation remains a key policy roadblock for both the EU and the UK.

European stocks shed weight on Wednesday, dragging broad indexes down into the red and sending Germany’s DAX index into its lowest bids of the year thus far and challenging prices not seen since early December.

UK inflation unexpectedly rose to 4% in December, driving back market hopes of near-term rate cuts from the Bank of England (BoE) with money markets angling for the first round of rate trimming from both the BoE and the European Central Bank (ECB) sometime around the end of the first quarter. With UK inflation plaguing BoE policymakers and officials from the ECB talking down rate cut hopes at the World Economic Forum (WEF) in Davos, Switzerland, markets are caught looking incredibly over-invested in rate cut expectations.

ECB President Christine Lagarde noted that a summer rate cut could be “likely” from the ECB, tentatively falling in-line with rate outlooks from other ECB officials, but the ECB President leaned heavier into a cautionary stance. ECB President Lagarde noted specifically that Services sector inflation remains above 4%, a price growth level that will need to come down before the ECB can even begin to consider rate cuts.

The pan-European STOXX600 major equity index declined 1.13% on Wednesday, falling 5.35 points to close at €467.71 while France’s CAC40 shed nearly 80 points to close down 1.07% at €7,318.69.

Germany’s DAX index fell a comparatively sedate 0.84% as one of the better-performing indexes from Europe, declining just under 140 points to close at €16,431.69.

London’s FTSE tumbled nearly 1.5% for the mid-week market session, falling 112 points and ending the day at £7,446.29.

DAX Technical Outlook

The German DAX equity index fell to a six-week low near €16,330 and is set for one of its worst weeks since August, down peak-to-trough 2.4% from Monday’s opening bids near €16,730.

The equity index caught a late rebound into the €16,400 region to finish Wednesday slightly up from the floor, but the DAX still sees accelerating declines in the near-term as bearish price action tumbles away from the 200-hour Simple Moving Average (SMA) near €16,640.

Wednesday’s declines bring the DAX within touch distance of the 50-day SMA just above €16,200, and the equity index is down 3.4% from December’s peak just below the €17,000 handle.

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