The Euro Stoxx 50 index has staged a strong comeback in the past few days. The index, which tracks the biggest European companies, has risen in the past six consecutive days, reaching a high of €4,977, its highest point since October 29. It has jumped by about 6% from its lowest level in November.
European Central Bank decision
The Euro Stoxx 50 index has recovered modestly and is on a path toward its all-time high as traders wait for the upcoming European Central Bank decision.
Economists expect the bank to cut interest rates for the fourth consecutive time since the European economy is not doing well.
Data released last week by S&P Global showed that the bloc’s manufacturing and services PMIs remained under pressure in November.
Another report showed that the German industrial production continued falling in October as companies like BASF and Volkswagen slows.
European inflation has also moved near the 2% target level of the central bank, while the labor market is softening in some countries.
Therefore, analysts believe that the ECB will cut interest rates by 0.25% in this meeting, a move that will boost the Euro Stoxx 50 index. Historically, stocks do well when central banks are cuttng rates.
The Federal Reserve is also expected to continue with its easing cycle this month. It has already slashed interest rates two times this year, and analysts see it slashing by another 0.25% in its final meeting of the year.
Fed actions have an impact on European stocks because of the vast number of companies that do business in the US. The US is one of the biggest markets for companies like Volkswagen and SAP.
Still, a key concern among investors is that Donald Trump may start to implement tariffs on European goods because of the large trade deficit between the two regions. Tariffs tend to have a negative impact on trade flows between countries.
These tariffs would come at a difficult time for European companies, which are now struggling to compete with their Asian companies. For example, the automobile sector is being disrupted by a company like BYD that is now selling millions of vehicles annually.
Top Euro Stoxx 50 movers
SAP, the giant software company, is the best-performing company in the Euro Stoxx 50 index this year as it jumped by 74%. It has done well because of its strong recurring revenue growth and its investments in artificial intelligence.
Prosus, a global investment company that was previously owned by Naspers, is another top performer as its stock rose by almost 50% this year. The company has done well as technology companies have bounced back. Analysts expect that it will now take some of its portfolio companies public or sell them.
Ferrari stock price has surged by 40% this year as demand for luxury vehicles continued rising. It is one of the best-performing automobile stocks this year.
The other top performers in the Euro Stoxx 50 index are Flutter Entertainment, Inditex, Schneider Electric, and Allianz.
On the other hand, some of the top laggards are firms like Stellantis, Deutsche Post, L’Oreal, Pernod Ricard, BMW, Kering, and Volkswagen. All these companies have a large exposure to China, a country that is not doing well.
Euro Stoxx 50 index analysis
The daily chart shows that the Euro Stoxx 50 index has bounced back in the past few weeks. It has rallied and crossed the 200-day and 50-day Exponential Moving Averages (EMA). The two averages are about to form a bullish crossover known as a golden cross.
The index has also formed an inverse head and shoulders pattern, a popular bullish reversal pattern. Also, the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards.
Therefore, the index will likely have a strong bullish breakout as bulls target the next key resistance level at €5,000. A move above that level will point to more gains in the near term.
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