DAX slumps as Trump threatens tariffs on China

The DAX index has plunged on Monday. Currently, the DAX is at 12,168, down 1.98% on the day. German services PMI improved to 55.7, just above the estimate of 55.6. This marked the strongest score since September. The eurozone release dipped to 52.8, but still beat the forecast of 52.5. Eurozone Sentix Investor Confidence jumped to 5.3, well above the estimate of 1.1. As well, retail sales slowed to 0.0%, above the estimate of -0.1%. On Tuesday, Germany releases factory orders and the EU posts its economic forecasts of member states.

The DAX climbed 7.1% in April, but has fallen hard to earth in early May. The index has fallen close to 2 percent since the weekend, in response to President Trump’s threat to impose further tariffs against China. On Sunday, Trump said that the U.S. would raise tariffs on $200 billion worth of Chinese goods as early as Friday, from 10% to 25%. Trump sounded nonchalant about the trade talks, saying that even if an agreement wasn’t reached, the U.S. would benefit from the new tariffs. The belligerent comments have spooked investors and sent equity markets sharply lower on Monday. China has threatened to cancel the talks, but the stakes are huge, so cooler heads will likely prevail and the talks are expected to continue.

Eurozone inflation is expected to climb to 1.7% in April, marking a 5-month high. The stronger reading is a reflection of higher oil prices, which has pushed prices higher. Inflation is moving closer to the ECB target of close to 2 percent, and if the upward trend continues, ECB rate-setters will have to give some thought to raising interest rate levels. The bank recently announced that no rate hikes were planned before the spring of 2020, and this dovish stance makes the euro less attractive to investors and is bullish for European equity markets.

Tariff threat turns risk appetite on its head

Risk slumps after Trump’s Trade Threats

Economic Calendar

Monday (May 6)

• 3:55 German Final Services PMI. Estimate 55.6. Actual 55.7
• 4:00 Eurozone Final Services PMI. Estimate 52.5. Actual 52.8
• 4:30 Eurozone Sentix Investor Confidence. Estimate 1.1
• 5:00 Eurozone Retail Sales. Estimate -0.1%. Actual 0.0%

Tuesday (May 7)

• 2:00 German Factory Orders. Estimate 1.6%
• 5:00 EU Economic Forecasts

*All release times are DST

*Key events are in bold

DAX, Monday, May 6 at 6:35 DST

Previous Close: 12,412 Open: 12,169 Low: 12,135 High: 12,247 Close: 12,168

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