Downgrade to German growth sends DAX to 3-week low

The DAX index has steadied on Wednesday, after declining 1.6% on Tuesday. Currently, the DAX is at 12,089, down 0.03% on the day. In economic news, German industrial production came in at 0.5%, much stronger than the estimate of -0.5%. Later in the day, the ECB releases the minutes of its April policy meeting.

Investors pulled the plug on European stock markets on Tuesday, in response to a report from the EU, which slashed the 2019 growth outlook for Germany. In February, the EU projected growth of 1.1%, but this has been drastically cut to 0.5%. The downgrade for the eurozone was minor, from 1.5% to 1.4%. The EU noted that the downside risks to the eurozone remain “prominent”, and noted that deadlines for the U.S-China trade talks and Brexit had come and passed, leaving significant uncertainty about the economic outlook. The report warned that “an escalation of trade tensions could prove to be a major shock.” The weak German forecast and pessimistic tone of the report unnerved investors, as the DAX posted its biggest one-day decline since mid-April.

Adding to the DAX’s woes this week was an escalation in trade tensions between China and the U.S. 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%. Chinese officials had said it would cancel the talks, but this turned out to be an empty threat. Chinese Vice Premier Liu He is scheduled to lead a Chinese delegation to Washington. Will the new U.S. tariffs be rescinded? Treasury Secretary Steve Munchin said that the tariffs could be cancelled when the talks resume. Such a move would restore investor confidence and could trigger a rebound on the stock markets, after a very rough start to the week.

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Economic Calendar

Wednesday (May 8)

• 2:00 German Industrial Production. Estimate -0.5%. Actual 0.5%
  
• 7:30 ECB Monetary Policy Meeting Accounts

*All release times are DST

*Key events are in bold

DAX, Wednesday, May 8 at 7:20 DST

Previous Close: 12,092 Open: 12,092 Low: 12,063 High: 12,182 Close: 12,091

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