DAX under pressure as UBS blues drag down banking sector

The DAX index has edged lower in the Tuesday session. Currently, the index is at 11,097, down 0.35% on the day. In economic news, Germany releases ZEW Consumer Sentiment remains weak, but improved to -15.5 points. This was better than the estimate of -18.8 points. Eurozone ZEW Economic Sentiment ticked higher to -20.9, shy of the forecast of -20.1 points. Germany releases ZEW Consumer Sentiment remains weak, but improved to -15.5 points. This was better than the estimate of -18.8 points. Eurozone ZEW Economic Sentiment ticked higher to -20.9, shy of the forecast of -20.1 points. On Wednesday, the eurozone releases consumer confidence.

Is the DAX rally over? After posting three successive weeks of gains, the DAX is lower this week. On Tuesday, Swiss bank UBS dropped over 4 percent, after releasing weak fourth-quarter earnings. The UBS announcement dampened appetite for banking shares, and Deutsche Bank has declined 3.7 percent on the day. There was more bad news for investors, as the IMF revised downwards its global growth forecast. In October, the IMF projected growth of 3.7% percent, but this has been revised to 3.5 percent. IMF head Christine Lagarde said that the world’s economy continues to expand, but “it is facing significantly higher risks”.

Is the eurozone headed for a recession? Growth forecasts have been revised lower for the three largest economies in the bloc (Germany, France and Italy). The U.S-China trade war, which shows not signs of being resolved anytime soon, has taken a bite out of the eurozone export and manufacturing sectors have slowed. If the trade war worsens or the U.S. economy slows down in 2019, the eurozone could lapse into a recession. Given these weak economic conditions, the ECB, which finally terminated its massive stimulus program last month, is unlikely to raise interest rates before the fourth quarter of 2019. Just a few months ago, analysts were predicting a rate hike in the third quarter. Lower rates should be bullish for the equity markets, which will be more attractive to investors than the bond markets.

Economic Calendar

Tuesday (January 22)

  • 5:00 German ZEW Economic Sentiment. Estimate -18.8
  • 5:00 Eurozone ZEW Economic Sentiment. Estimate -20.1

Wednesday (January 23)

  • 10:00 Eurozone Consumer Confidence. Estimate -6

*All release times are DST

*Key events are in bold

DAX, Tuesday, January 22 at 5:40 EST

Previous Close: 11,136 Open: 11,070 Low: 11,062 High: 11,143 Close: 11,097

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.