DAX drops to March low as ECB sends dovish message

For a third straight day, the DAX index has recorded considerable losses. On Friday, the DAX is at 11,451, down 0.58% on the day. It’s a quiet day for eurozone fundamentals. The sole event, German factory orders, dropped by 2.6% in January. This marked a third straight decline, as the manufacturing sector continues to struggle.

The ECB sent a chill down the spines of investors on Thursday, and the downward trend has continued on Friday. The rate statement and follow-up comments from Mario Draghi were very dovish and have soured risk appetite. The ECB announced that it was extending its forward guidance on interest rate levels, saying that it would not raise rates before 2020. Although this should not have come as a surprise, the ECB had been on record until now as saying that rates could move higher in late 2019. In an acknowledgment to the slowdown in the eurozone, the ECB announced a new round of long-term loans to eurozone banks and slashed the 2019 GDP forecast for the bloc to 1.1%, down from 1.7% in the previous forecast. Mario Draghi reinforced the bank’s dovish stance in his press conference, saying that downside risk was pointed to the downside, although a recession was unlikely.

The U.S-China trade war has weighed on the global economy and caused significant volatility in the equity markets. Now that trade tensions have eased between the two super-economies, are we finally close to an agreement? If progress continues and the sides ink an agreement, traders can expect the markets to climb sharply. An agreement between the U.S. and China cannot come fast enough for Germany, the locomotive of the eurozone. The OECD has lowered its 2019 GDP forecast for Germany to 0.7%, down from 1.6% in November.

Draghi releases the doves and not the hounds

Economic Calendar

Friday (March 8)

• 2:00 German Factory Orders. Estimate 0.5%. Actual -2.6%

*All release times are DST

*Key events are in bold

DAX, Thursday, March 8 at 5:50 EST

Previous Close: 11,517 Open: 11,431 Low: 11,423 High: 11,474 Close: 11,451

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