The DAX index has posted slight gains in the Monday session. Currently, the index is at 11,562, up 0.37% on the day. In economic news, it’s a quiet start to the week, with no German or eurozone events. In the U.S, the Treasury Department is expected to release the semi-annual currency report.
It’s been a brutal week for global equity markets, but there has been some relief on Friday. Asian markets recorded gains, lifting European markets as well. Even with Friday’s gains, the DAX has declined 3.5% this week. Two key factors in the sharp decline are the spike in U.S bond yields and growing fears about the impact of the U.S-China trade war. The DAX touched a low of 11,518 this week, its worst showing since February 2017. If bond yields continue to rise next week, the DAX could face further headwinds next week.
German inflation data was strong in September. CPI climbed 2.3% in September on a year-to-year basis, its strongest gain since November 2011. Not surprisingly, much of the increase is a result of higher energy prices, as Brent crude remains above $80 a barrel. Eurozone inflation has also been moving higher and is finally closing in on the ECB’s target of just below 2 percent. Stronger inflation has reinforced speculation that the ECB could raise interest rates for the first time in years in the second half of 2019.
The ECB made no changes to monetary policy at the September policy meeting, but the minutes indicated that policymakers are worried that global trade tensions could dampen eurozone growth. The ECB debated whether to lower its risk assessment, but in the end decided that the eurozone economy was strong enough to allow the ECB to maintain its ‘slow but steady’ stance of tightening policy. The ECB remains on track to end its massive bond purchase program at the end of the year. Meanwhile, with bond yields pointing higher, investors have reacted negatively and stock markets continue to spin lower. On Thursday, German 10-year bonds fetched 0.55%, marking a 6-month high.
