The DAX index has posted gains on Tuesday, after very sharp losses in the Monday session. Currently, the DAX is trading at 11,408, up 0.32% on the day. In economic news, German ZEW Economic Sentiment posted a dismal reading of -24.1, just above the estimate of -24.2 points. Eurozone ZEW Economic Sentiment fell to -22.0, much weaker than the estimate of -17.3 points. On Wednesday, Germany and the eurozone will release GDP reports.
It was black Monday for European stock markets, as technology stocks were down sharply. The DAX slid some 2.30% on Tuesday, dropping to its lowest level since the end of October. After the steep losses on Monday, there is some optimism on Tuesday, after reports that a senior Chinese official will visit Washington shortly to hold trade talks.
The deadlock between Italy and the EU over Italy’s budget continues to weigh on the markets. The EU Commission has set midnight Tuesday as a deadline for Italy to revise its budget by Tuesday, which it argues raises Italy’s debt and is in breach of EU fiscal rules. However, Italian officials have flatly rejected the EU demands. Matteo Salvini, Italy’s interior minister, stated that the government would not change the budget by “one iota”. The EU could respond with stiff fines, worth billions of euros. There is serious concern in Brussels about that overspending by the Italian government could hurt Italian stocks and bonds, destabilize the banking sector and even lead to contagion in other eurozone members. With Rome and Brussels on a collision course, the fallout could weigh on European stock markets and the euro.
Another issue weighing on European stock markets is increasing concern over the Brexit negotiations, with the clock ticking to Brexit Day in March. Prime Minister May is facing stiff opposition over her Brexit proposals, both domestically and from Brussels. British and European negotiators met on the weekend but were unable to resolve the Irish border issue. The EU wants a backstop solution to be under the jurisdiction of the European Court of Justice, but the UK is unlikely to agree to such a proposal.
