DAX – Market volatility continues on disappointment over Fed statement

After sharp losses on Thursday, the DAX has rebounded with considerable gains on Friday. Currently, the DAX is at 10,585, up 0.54% on the day. On the release front, German GfK Consumer Confidence remained pegged at 10.4, edging above the estimate of 10.3 points. It’s a busy day in the U.S., highlighted by Final GDP for the third quarter, with an estimate of a strong 3.5% gain.

Equity markets have shown plenty of volatility in December, and this trend has continued this week. The catalyst was the Federal Reserve rate statement, which soured the markets and sent equities lower. Investors had expected a rate hike, which the Fed delivered. However, there was hope for a dovish rate statement, given that the markets have been in turmoil for weeks and the U.S. economy appears to be cooling down. Instead, policymakers maintained plans to continue raising rates. Most significantly, policymakers did not remove the critical phrase “further gradual increases” from their statement. At the same time, the dot plot forecast was lowered for 2019, from three rate rises to two.

Just a few months ago, the markets were predicting a “rate hike every quarter” for 2019, but the Fed has made a U-turn in monetary policy, as policymakers respond to economic data which is pointing to slower growth. The policy of gradual rate hikes bears much of the responsibility for the volatility in the markets, and the message from the Fed that more hikes are coming will likely mean that the volatility will continue in December and into the New Year.

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Economic Calendar

Friday (December 21)

• 2:00 German GfK Consumer Climate. Estimate 10.3. Actual 10.4
• 2:00 German Import Prices. Actual -1.0%
• 8:30 US Final GDP. Estimate 3.5%
• 10:00 Eurozone Consumer Confidence -4

*All release times are DST

*Key events are in bold

DAX, Friday, December 21 at 6:30 EST

Open: 10,527 Low: 10,512 High: 10,614 Close: 10,573

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