DAX Lower as German ZEW Economic Sentiment Slips

The DAX index has posted losses in the Tuesday session. Currently, the DAX is trading at 12,515.00, down 0.57% on the day. On the release front, German ZEW Economic Sentiment dropped to 17.5, short of the estimate of 17.8 points. This marked the key indicator’s lowest level in 4 months. The Eurozone ZEW Economic Sentiment also softened, coming in at 35.6 points. This reading missed the forecast of 37.2 points.

The political turmoil continues in the US, as President Trump’s troubles are increasing. On Tuesday, the Republicans announced that they will not attempt to advance their health care proposal before Congress takes a recess in August. This decision is a major setback to President Trump, who has tried to pass a health care bill which would replace Obamacare, but opposition from some Republican lawmakers has meant that the White House does not have the votes to pass such a bill. Despite Republican control of both houses of Congress, no major legislation has been passed since Trump took over as president 6 months ago. There is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.

One of the key stocks which make up the DAX, Deutsche Bank, is under pressure. Shares dropped 0.91% on Friday and are down 1.8% this week. Germany’s largest bank started off the Monday session with losses after the ECB said it was considering implementing ownership-control procedures against the bank’s two largest shareholders, Qatar’s royal family and HNA, a Chinese conglomerate. The aim of the review is to ensure that an investor is financially stable and untainted by money-laundering or other crimes. If either shareholder fails the test, Deutsche Bank shares would likely fall.

Inflation levels in the US have been stubbornly low, despite a generally strong economy and a tight labor market. Still, the Federal Reserve remains convinced that it’s only a matter of time before inflation levels move higher. This stance was reiterated by Fed Chair Janet Yellen last week, as she testified before congressional and senate committees. With the labor market close to capacity and the unemployment rate at just 4.4%, economists are puzzled why this hasn’t translated into higher inflation. In her testimony, Yellen admitted that the Fed was at a loss to explain the lack of inflation, but insisted that it was “premature to conclude that the underlying inflation trend is falling well short of 2 percent”, and that with a strong labor market “the conditions are in place for inflation to move up”. Is Yellen’s argument just wishful thinking?

US consumer inflation and spending numbers for June were a disappointment. CPI edged up to 0.0%, short of the forecast of 0.1%. There was no relief from Retail Sales, which declined 0.2%, missing the estimate of 0.1%. This marked the third decline in the past four months. Consumer spending accounts for 2/3 of US economic activity, so it’s no surprise that weak spending has also meant weak inflation, despite Yellen’s claim that low inflation is a temporary phenomenon. The economy had a weak first quarter, with growth of just 1.4%. If the second quarter follows suit, investors could sour on the US dollar.

Asia Shares topple as US political risk looms

Economic Calendar

Tuesday (July 18)

• 5:00 German ZEW Economic Sentiment. Estimate 17.8. Actual 17.5
• 5:00 Eurozone ZEW Economic Sentiment. Estimate 37.2. Actual 35.6

*All release times are EDT

*Key events are in bold

DAX, Tuesday, July 18 at 6:50 EDT

Open: 12,536.50 High: 12,572.50 Low: 12,494.00 Close: 12,515.00

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