The DAX index has posted gains in the Wednesday session. Currently, the DAX is at 12,740, up 0.44% since the Tuesday close. On the release front, there are no major German or eurozone indicators. German PPI remained steady at 0.5%, edging above the estimate of 0.4%. The ECB Forum continues on Wednesday, with ECB head Mario Draghi and Fed chair and Jerome Powell participating in a panel discussion. On Thursday, the eurozone releases consumer confidence.
After a dismal start to the week, the DAX has steadied, and the reversal could be linked to a calm message from Mario Draghi, who opened the ECB forum on Tuesday. Draghi counseled patience regarding the bank’s interest rate policy. Last week, the ECB announced last week that it was winding up its asset-purchase plan by the end of the year, but added that it would not raise interest rates before next summer. This dovish message sent the euro sharply lower. Draghi said that the ECB will be “patient in determining the timing of the first rate rise”. Draghi also made reference to inflation, saying that “inflation expectations remain well anchored”. However, analysts were quick to note that eurozone inflation has fallen short of the bank’s target of just below 2 percent for five years. Draghi acknowledged that there were external factors which could weigh on inflation, including the threat of global protectionism and higher oil prices. There is also the vexing problem that higher wages have failed to translate into increased inflation. Draghi would like to get through the European Forum without shaking up the fragile equity markets and so far he has succeeded.
Investors remain wary this week, as the trade war rhetoric between the United States and China continues to escalate. On Tuesday, the DAX fell to its lowest level since May 31. The trouble started on Friday, when the U.S announced a 25 percent tariff on $50 billion in Chinese goods. After China responded with an identical move on U.S. imports, President Trump threatened to impose 10 percent tariffs on some $200 billion in Chinese goods. Not surprisingly, China has threatened to retaliate against this latest move. Trump has vowed to take action on the $375 billion trade deficit that the U.S has with China, claiming that the latter is guilty of unfair trade practices. With the first of the U.S tariffs scheduled to take effect on July 6 and no signs that any side will blink first, the markets should be preparing for stormy weather ahead. It will be interesting to see if central bank heads Draghi and Powell address the tariff spat on Wednesday at the ECB Forum.
