FTSE MIB forms a rare bullish pattern; is an all-time high coming?

Italian stocks bounced back this week as investors embraced a risk-on sentiment. The blue-chip FTSE MIB index rose to a high of €34,400, its highest point since July 24. It has risen by over 12% from its lowest point in August and by almost 15% this year. 

ECB interest rates

One of the main reasons why the FTSE MIB index has soared is that the European Central Bank (ECB) has embraced a highly dovish tone. 

In its interest rate decision last week, the bank slashed interest rates by 0.25% and hinted that more were coming.

The case for more cuts emerged earlier this week when S&P Global published weak manufacturing and services PMI numbers.

According to the company, the manufacturing PMI figure remained below 50, meaning that it is still in a contraction mode. 

Most European manufacturers are struggling because of the elevated energy prices after Russia reduced supplies in 2022. While gas prices have dropped, many European companies are paying higher prices than those in China.

There is an elevated risk that Europe’s de-industrialisation will continue. This month, Volkswagen caused shockwaves when it announced plans to shutter some plants in Germany. 

In addition to higher energy prices, Chinese companies benefit from lower interest rates.

The service output continued retreating in September. Therefore, analysts expect the ECB will continue cutting interest rates in the final two meetings this year and possibly continue in 2025.

Stock indices like FTSE MIB do well when central banks are cutting rates. However, a risk for the index is that the euro has strengthened substantially in the past few months, which may affect international demand. 

The ECB is not the only central bank that is cutting interest rates. The Federal Reserve delivered a jumbo cut last week while the likes of Swiss National Bank (SNB) and Riksbank continued easing.

These cuts raise the chances of more corporate activity like acquisitions in the region. Just recently, Unicredit, one of the biggest members of the FTSE MIB index, started building a stake in Commerzbank. In an interview, the CEO hinted that the stakebuilding would lead to an acquisition.

Italian stocks receive a Chinese boost

The other top catalyst for the FTSE MIB has been the recent actions by the Chinese government, which has unveiled a series of stimulus measures to support the ailing economy.

The PBoC has slashed interest rates and lowered the reserve ratio that banks should have. That action alone will unlock over $100 billion in funds. 

At the same time, the central government has hinted that it will deliver more stimulus, estimated at $140 billion.

These measures are important because the economy is slowing. The most recent data showed that it expanded by just 4.7% in the second quarter, leading to downgrades by the likes of Citi, Morgan Stanley, and Goldman Sachs.

China is an important country for Italian companies because many of them sell their products there.

Top FTSE MIB movers

Most FTSE MIB constituents have done well this year. The best performer is Unipol Gruppo, a leading company that operates in the banking and insurance businesses. Its stock has jumped by more than 105% this year. 

The other top performer is BCA MPS, the oldest bank in the world, whose shares have jumped by over 75%. Bper Banca shares have risen by 70%, while Ferrari has risen by 40%. 

The FTSE MIB index’s top laggards are STMicroelectronics, ERG, Campari, Stellantis, and Telecom Italia. All these stocks have plunged by over 20% this year.

FTSE MIB technical analysis

The daily chart shows that the FTSE MIB index has staged a strong comeback in the past few weeks. 

A closer look shows that it has formed an inverse head and shoulders chart pattern, a popular bullish sign. It has now moved slightly above this pattern’s neckline. 

The stock has also moved above the 50-day and 100-day Exponential Moving Averages (EMA) while the MACD indicator has moved above the neutral level.

Therefore, the FTSE MIB index will likely continue rising as buyers target the all-time high at €35,460, up by 3.25% above the current level

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