DAX heads higher on optimism over U.S-China talks

The DAX index has posted strong gains in the Tuesday session. Currently, the index is at 10,840, up 0.83% on the day. On the release front, there are no major German or eurozone indicators. German industrial production posted a sharp decline of 1.9%. On Wednesday, the eurozone releases the unemployment rate and the Federal Reserve will publish the minutes of its December meeting, when it raised interest rates for the fourth time in 2018.

The New Year has greeted investors with swings and the market volatility continues this week. The DAX rocketed 3.7% on Friday, following dovish comments from Fed Chair Jerome Powell. Investors were unhappy with the Fed’s December rate statement, which was less dovish than expected, as the Fed said it would continue raising interest rates in 2019. Powell tempered this stance on Friday with a more cautious outlook over rate policy. He said that he was aware of the risks of a slowdown in the U.S. economy and that the Fed would be patient in its policy decisions.

There is renewed optimism among investors, as the U.S. and China are meeting for two days of talks, in an effort to reduce global trade tensions, which have rocked equity markets, which had their worst year in 2018 since the 2008 financial crisis. The world’s two largest economies have engaged in tit-for-tat tariffs, and President Trump has threatened to impose additional tariffs on March 1 if the sides don’t reach a deal. If progress is made during the talks, traders can expect risk appetite to improve and boost the stock markets.

The German manufacturing sector has taken a hit due to ongoing global trade war, and this week’s manufacturing numbers are pointing to a slowdown. On Monday, Factory Orders fell 1.0%, well of the estimate of -0.2%. This was followed by a decline of 1.9% in Industrial Production, much weaker than the forecast of 0.3%. This marked the fifth decline in the past six months. Unless the ongoing trade war eases soon, we can expect the German manufacturing sector to continue to struggle.

The Powell “Put” continues to resonate

A bit of the feel-good factor has temporarily abated

Economic Calendar

Tuesday (January 8)

• 2:00 German Industrial Production. Estimate 0.3%. Actual -1.9%

Wednesday (January 9)

• 2:00 German Trade Balance. Estimate 17.6B
• 5:00 Eurozone Unemployment Rate. Estimate 8.1%
• Tentative – German 10-year Bond Auction
• 14:00 US FOMC Meeting Minutes

*All release times are DST

*Key events are in bold

DAX, Tuesday, January 8 at 7:15 EST

Previous Close: 10,747 Open: 10,743 Low: 10,743 High: 10,846 Close: 10,846

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