The DAX index is down considerably in the Wednesday session. Currently, the DAX is trading at 12,787.00, down 0.86% on the day. On the release front, it is a quiet day, with no German or Eurozone events. There are no major indicators until Friday, when Germany and the US release inflation reports.
Global stock markets are down on Wednesday, in response to rising tensions between the US and North Korea. The renegade state has reacted furiously to new sanctions imposed by Washington, and has threatened to attack Guam, which is a major US military base. President Donald Trump is taking a tough line on North Korea, and has promised that any aggression from North Korea will be met with “fire and fury.” With Trump and North Korean President Kim Jong-un on a possible collision course, risk appetite has decreased, as investors have snapped up gold, a traditional safe-haven asset.
German indicators started off the week on a sour note, as Industrial Production recorded a sharp decline of 1.1%. However, there was better news on Tuesday, as the trade surplus rose to EUR 21.2 billion, its highest level in 2017. Last week’s indicators were solid and continue to point to an expanding German economy. Retail Sales jumped 1.1%, its second-highest gain in 2017. Factory Orders gained 1.0%, while unemployment claims dropped 9 thousand – the employment indicator has declined every month in 2017, except one. Although manufacturing and services PMIs dipped in July, both are well over the 50-level, indicative of expansion. Are the strong German numbers too much of a good thing? Some analysts think so, and are cautioning that the German economy is in danger of overheating. Still, there’s no arguing that the eurozone economy has received a boost from the robust German economy. Eurozone GDP gained 0.6% in the second quarter, up from 0.5% in the previous quarter. As well, Eurozone Retail Sales gained 0.5%, marking a 4-month high.
While the euro has posted impressive gains of late, it has been the opposite story for the US dollar. Paralysis in Washington is weighing on the greenback, as Donald Trump’s antics and inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Fed strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to “transient” factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 34%, compared to 43% a week ago.
