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DAX, DOW and FTSE Resume Selloff on Sliding Commodities and Inflation Worries

  • DAX 40:DAX Suffers as Markets Flip-Flop Between Recession and Inflation Fears.
  • FTSE 100:FTSE Slumps as UK Inflation Hits Four-Decade High.
  • DOW JONES: DOW Surrenders the Week’s Gains as Fed Chair Powell’s Testimony Begins.

DAX 40: DAX Suffers as Markets Flip-Flop Between Recession and Inflation Fears

The Dax struggled in European trade this morning as stock markets hit the skids. This week’s brief rally fizzled out after soaring UK inflation numbers and declining commodity prices added to palpitations around monetary policy tightening. The Dax slumped along with European stocks, while haven assets including the US dollar, Treasuries and the Yen rose. The markets seem to be flip-flopping between recession fears and inflation fears. Citi Group offered up todays recession chatter, noting that recession odds are now closer to 50%, while maintaining that if a recession does occur it may well be a “garden variety” one.

Earlier today we had comments from European Central Bank vice president, Luis de Guindos who once again reiterated the ECB’s position. The ECB VP stated that the size of the September rate hike will depend on inflation expectations, while he hopes inflation will start easing after the Summer.

As DAX struggled this morning it’s no surprise that all sectors are in the red, led by healthcare and basic materials with losses of 2.65% and 2.36%. No notable gains to speak of, as BASF suffered on the back of comments regarding an expected downturn in the second half of 2022. The stock is down around 5% on the day.

DAX 40 Daily Chart – June 22,2022

DAX, DOW and FTSE Resume Selloff on Sliding Commodities and Inflation Worries

Source: IG

From a technical perspective, we had a bearish candlestick close (weekly candle) last week which closed below key support that turned resistance at the 13270 area. Following on two days of bullish price action, we had a shooting star candle close on the daily timeframe, retesting and closing below the 13270 area.

We have seen a push down today which currently looks like a bearish engulfing candle stick pattern is forming. We will need a daily candle close below previous monthly lows at the 12960 area. A break below could open up a retest of year-to-date lows of around 12450.

Key intraday levels that might be worth watching:

Support Areas

  • 12980
  • 12870
  • 12620

Resistance Areas

  • 13229
  • 13336
  • 13401

FTSE 100: FTSE Slumps as UK Inflation Hits Four-Decade High

The FTSE fell more than 1% on Wednesday after inflation in the country touched a fourdecade high in May, adding further pressure on the Bank of England (BOE) to raise interest rates, while falling crude and metals prices sent commodity-linked stocks tumbling. The UK consumer price index rose to 9.1% in May, up from 9% the previous month. Prices rose 0.7% in the month alone, a slowdown from the 2.5% pace recorded in April when the 54% energy price cap came into effect.

Rampant inflation will put an additional squeeze on tightening household budget, intensify demands for wage rises to offset higher prices, and make it more difficult to resolve industrial disputes such as the railway strikes which continue tomorrow.

FTSE losses this morning were exacerbated by energy stocks which are down 3.06%, while basic materials are down 3.7%. Among the notable movers on the FTSE 100 were Melrose PLC closely followed by Avast and Glencore with gains of 3.7%, 2.2% and 1.9% respectively. Among the notable movers this morning we had a bunch of energy stocks all struggling with the likes of BP and Shell posting losses of 2.9% and 3.5%. Ocado Group PLC and Rolls-Royce Holdings PLC were leading the way with losses of 7.2% and 5.6% respectively.

FTSE 100 Daily Charts – June 22, 2022

DAX, DOW and FTSE Resume Selloff on Sliding Commodities and Inflation Worries

Source:IG

The FTSE failed to maintain momentum as yesterday’s daily candle closed below our resistance area of 7150, while also leaving an upside wick. We have since retreated from resistance to hover just above the key psychological level of 7000.

Should price pressure see price back below June 20 lows at 6965 we could drop lower and retest year-to-date lows around the 6800 area.

Key intraday levels that might be worth watching:

Support Areas

  • 7048
  • 6975
  • 6750

Resistance Areas

  • 7150
  • 7330
  • 7600

DOW JONES: DOW Surrenders the Week’s Gains as Fed Chair Powell’s Testimony Begins

US equitieshave struggled in premarket trade as the market mood soured this morning with haven assets benefitting as a result. The Dow declined about 1.4% (440 points) in premarket trade.

The day’s main focus will be on U.S. Federal Reserve chair Jerome Powell’s two-day testimony to Congress.Investors will be looking for further clues about whether another 75 basis point rate hike is on the cards at the Fed’s July meeting, amid uncertainty whether aggressive monetary tightening to combat the raised levels of inflation will force the U.S. economy, the world’s main growth driver, into recession.

The only positive for the US economy this morning came from a Senior Administration Official who confirmed that President Joe Biden will call on US congress to temporarily suspend federal fuel taxes to help with record prices.

DAX, DOW and FTSE Resume Selloff on Sliding Commodities and Inflation Worries

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DOW JONES Daily Chart – June 22, 2022

DAX, DOW and FTSE Resume Selloff on Sliding Commodities and Inflation Worries

Source:IG

From a technical perspective the Dow remains pressured as it struggled to retest the previous support that turned resistance area 30800-31000 (grey rectangle on the chart) yesterday. Price is back above the psychological 30000 level having tested it in premarket trade. Any break of here could open up a retest of Junes low 29700 or the pre-covid high of 29500.

Key intraday levels that might be worth watching:

Support Areas

  • 30000
  • 29800
  • 29585

Resistance Areas

  • 31000
  • 30513
  • 30800

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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