European Markets Struggle with Mixed Signals as FTSE Nears Record Highs Amid Caution

European equities opened cautiously on May 6, 2025, with the FTSE 100 flirting with historic highs while grappling with overbought conditions and weak domestic demand. Though the index’s 15-day winning streak has propelled it near its March 2025 peak of 8,908, traders are bracing for a potential correction as technical indicators and economic data raise red flags.

FTSE 100: Near Records, But Overbought Risks Loom

The FTSE 100 opened down 0.1% at 8,589.25 on May 6, a slight retreat after a 1.2% gain on May 2. Analysts attribute this dip to falling UK consumer confidence, which hit -53 in April—the lowest since the 2022 cost-of-living crisis—and uncertainty around German Chancellor Friedrich Merz’s policy direction. Despite the short-term dip, the index remains within 3.3% of its March record high, driven by optimism over a 0.6% UK GDP expansion in late 2024 and expectations of a Bank of England rate cut.

Technical analysts warn, however, that the index is stretched. Overbought conditions and a critical support level at the 200-day moving average (8,351) suggest traders may dip-buy if the decline accelerates. Yet, the proximity to record highs keeps bulls hopeful for a retest of 8,908 after a minor correction.

European Markets Split Amid Policy Crosscurrents

While London markets dipped, Germany’s DAX 40 surged 1.2%, buoyed by optimism over Merz’s coalition government and U.S. tariff relief. France’s CAC 40, however, fell 0.6%, reflecting broader eurozone fragility. The UK’s May Day closure left London markets temporarily quiet, but traders remained fixated on the UK Composite PMI data, which was due at 0930 BST on May 6.

The PMI data, a key gauge of private-sector health, had already signaled a slowdown in April. Flash estimates pointed to a drop from March’s 51.5 to around 50.5, suggesting weakening demand and new business activity. A reading below 50 would mark contraction—a worrying sign for an economy already facing 64% of consumers expecting a downturn.

PMI Weakness Could Tip the Scales

A disappointing PMI outcome would likely depress GBP/USD (Cable), as weak growth fuels speculation about further BoE rate cuts. This contrasts with the Federal Reserve’s hawkish stance, widening interest rate differentials and bolstering the U.S. dollar. Earlier this year, similar PMI slumps in November 瞠 2024 triggered a 1.5% drop in the pound, and traders are braced for a repeat.

Meanwhile, eurozone markets face dual pressures: Germany’s lingering recession and U.S. trade barriers. The ECB’s rate cuts to 2.5% by March 2025 have done little to offset these headwinds, leaving investors wary of overextending in European equities.

Conclusion: FTSE’s Bulls Face a Delicate Balance

The FTSE 100’s near-record levels are a testament to resilience, but its path forward is fraught with risks. Overbought technicals, weak consumer sentiment, and a potentially bleak PMI reading create a precarious setup. While dip-buyers may see opportunities at the 8,351 support level, a sustained breach could trigger a deeper correction.

Investors should monitor the UK Composite PMI closely: a reading below 50 would likely push the FTSE toward its 200-day average and weigh on GBP/USD. Conversely, a surprise rebound in activity could reignite the index’s upward momentum. For now, the FTSE’s record highs remain in sight—but the road there is narrow and uncertain.

With the index within striking distance of 8,908 and critical support levels holding, the coming weeks will test whether the UK’s economic optimism can overcome its own overbought technicals and fading consumer confidence. The answer may hinge on data, not just sentiment.