European indexes close broadly lower as ECB weighs down rate cut expectations

• European equity indexes retreated on Tuesday, STOXX600 dropped a quarter of a percent.
• ECB officials continue to press down on market rate cut hopes.
• UK’s FTSE sees five-week lows as declines extend.

European equities broadly ended Tuesday in the red as central bank policymakers saw a rapid-fire rotation of comments during the World Economic Forum in Davos, Switzerland. European Central Bank (ECB) policymakers diverged slightly on their comments, but the overall outline of policymakers’ was clear-cut enough that money markets balked on rate-cut hopes in March.

Investors are no longer fully priced-in on the first 25 basis point rate cut from the ECB in April as key ECB policymakers press down on market expectations by reaffirming the ECB remains data-dependent, and wary of potential shocks in price growth moving forward.

Read More: ECB policymakers hit the wires on Tuesday

• ECB’s Villeroy: Too early to declare victory over inflation
• ECB’s Centeno: Need to be prepared for all topics, including rate cuts
• ECB’s Välimäki: Must not jump the gun on rate cuts
• ECB's Simkus: doesn't see rate cuts until summer

European economic data further hampered market momentum on Tuesday as German inflation remains stubbornly above-target, despite deteriorating economic sentiment in the near-term.

Germany’s Harmonized Index of Consumer Prices (HICP) for the year ended December stuck to 3.8% as markets broadly expected, holding steady with the previous print, flummoxing market hopes of inflation in key European markets leading the way down towards the ECB’s key policy target of 2%. The pan-European ZEW Economic Sentiment Survey in January declined less than expected to print at 22.7 versus the forecast backslide to 21.9, but still coming in lower than December’s 23.0.

Germany’s Zew Economic Sentiment Survey for the same period improved to 15.2 versus the forecast decline from 12.8 to 12.0, but Germany’s January ZEW Current Situation Sentiment Survey ticked down to -77.3 from -77.1, coming in below the forecast -77.1.

Germany’s DAX index declined three-tenths of a percent to close at €7,558.34, down 50.54 points, while France’s CAC 40 shed nearly a fifth of a percent, sliding 13.68 points to close at €7,398.00.

The pan-European STOXX600 major equity index lost a quarter of a percent to close down 1.13 points at €473.06, while London’s FTSE 100 index tumbled nearly half a percent to close down 36.57 points at £7,558.34.

DAX Technical Outlook

Germany’s DAX equity index tested into near-term lows on Tuesday, setting a new low for the week and challenging familiar lows from earlier in the month near €16,450.00. The DAX remains on the low side of near-term consolidation that has plagued the index since the start of 2024, which kicked off the new trading year with a brief ramp-up into €16,945.00.

The DAX has failed to drive additional bullish momentum since chalking in all-time highs in mid-December near €16,985.00, but the consolidating index still sees plenty of technical support from a bullish 50-day Simple Moving Average near €16,200.00 climbing higher above the 200-day SMA near €15,800.00.

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