- Fresh COVID outbreak in China raises demand fears
- Crypto sell-off could impact risk appetite
- DAX testing 200-day average
With much of the focus being on US midterm elections, let’s not forget about China and the cryptocurrency sell-off, which could hurt risk appetite and potentially halt the recent stock market recovery. Among the European indices to watch is the German DAX index as it tests an important technical area.
As the chart shows, the DAX future has been making short-term higher highs and higher lows ever since bottoming out in October. It has gone on to break many resistance levels and a bearish trend line. Earlier this week, it closed above resistance in the 13464 to 13572 range, before rising above the 200-day average. So, the chart is certainly not looking as bearish as a couple of weeks ago. But with China resuming the sell-off and cryptos getting a hammering, there is a risk we could see renewed pressure come into the markets.
From a bearish point of view, a break back below the aforementioned support range in 13464 to 13572 area would be a bearish outcome. If the DAX future, then goes on to break the last low prior to the recent move higher at 13036, then it is game over for the bulls, as we will then have a fresh lower low in place.
So far, it has been a slow start to the day for European stock markets, with investors re-focusing their attention to China, where worries about demand in the wake of fresh COVID outbreaks weighed on crude oil and the local stock markets again. Cases have surged in the manufacturing hub of Guangzhou, as well as a number of other Chinese cities. China has re-affirmed its strict zero-COVID policy, so there may well be further growth-chocking lockdowns to come. Indeed, this has been among the reasons why China’s economic growth has been so weak this year and it is precisely what investors are worried about again.
Meanwhile, the crypto sell-off has also gathered momentum, with Bitcoin hitting a new low for the year on renewed liquidity fears as FTX, in talks to be rescued by Binance, 'effectively paused' withdrawals. It is definitely something to keep an eye on, as it may be an additional factor impacting risk appetite across the financial markets.
Finally, there have been quite a few earnings to digest in Europe today. Among the German companies to report their results were Commerzbank (ETR:CBKG) and Adidas (ETR:ADSGN). The former saw its share 5% after the German lender reported a 52% drop in its net profit in the third quarter. The latter was flat, even as the sportswear retailer cut its net income forecast for 2022 in half.
Disclaimer: The author currently does not own any of the instruments mentioned in this article.