DAX edges higher after dovish Fed minutes

The DAX index has edged higher in the Thursday session. Currently, the index is at 10,856, up 0.12% on the day. On the release front, there are no German or eurozone releases. The ECB released the minutes of its December policy meeting.

The U.S. dollar’s retreat continued on Wednesday, after the release of the FOMC minutes of the December meeting. At the meeting, the Fed raised rates for a fourth time in 2018, culminating a very aggressive stance. This was reflected in the rate statement, but then came the thumbs-down from investors, who wanted a more dovish approach, and sent the equity markets into a tailspin. Fed policymakers have since made a sharp U-turn and are sounding much more cautious about future rate hikes. The minutes noted low inflation meant that the Fed can “afford to be patient about further policy firming”. Even more striking, the minutes revealed that at the December meeting, some policymakers opposed a rate hike, arguing that inflation was too low to warrant higher rates. The new dovish stance from the Fed has relieved investors and helped stabilize the stock markets, but has hurt the U.S. dollar, with some analysts predicting a cut in rates late this year.

Is this the calm after the storm? After weeks of turmoil in the equity markets, risk appetite has returned and steadied the markets. There are two main reasons for renewed market optimism. First, the Fed has made a sharp U-turn since the December rate hike and are sounding much more cautious about future rate hikes. The minutes noted low inflation meant that the Fed can “afford to be patient about further policy firming”. Even more striking, the minutes revealed that at the December meeting, some policymakers opposed a rate hike, arguing that inflation was too low to warrant higher rates. The new dovish stance from the Fed has relieved investors and helped stabilize the stock markets, but has hurt the U.S. dollar, with some analysts predicting a cut in rates late this year.

A second catalyst for stronger investor confidence is renewed hope that the U.S. and China could reach a deal and end their nasty trade war, which has rocked global equity markets for months. This week’s meeting between the parties wrapped on Wednesday, after being extended for an extra day. There was no breakthrough at the talks, but the sides made minor progress on a number of issues and the negotiations are expected to continue.

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Economic Calendar

Thursday (January 10)

• 7:30 ECB Monetary Policy Meeting Accounts

*All release times are DST

*Key events are in bold

DAX, Thursday, January 10 at 9:25 EST

Open: 10,843 Low: 10,896 High: 10,788 Close: 10,856

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