DAX Plunges to 6-month Low After US Imposes Steel Tariffs, German Retail Sales Slide

The DAX index continues to head lower and has posted sharp losses in the Friday session. Currently, the index is trading at 11,962.50, down 1.88% since the Thursday close. On the release front, German retail sales dropped 0.7%, well off the estimate of a 0.8% gain. On the inflation front, Eurozone PPI, improved to 0.4%, matching the estimate.

It has been a dreadful week for the DAX, which has shed 4.6% if its value. European stock markets are in red territory on Friday, following US President Trump’s decision to impose stiff tariffs on steel and aluminum imports in order to protect domestic producers. Under the new scheme, foreign steel will be taxed at 25% and aluminum at 10%. The response to the move was overwhelmingly negative, both abroad and in the US. China and the EU immediately denounced the move and US auto makers and oil and gas producers also condemned the tariffs. In imposing the tariffs, Trump relied on a provision which allows such measures for national security, but clearly, US trading partners will not quietly accept these protectionist measures. If these countries retaliate, a nasty trade war could ensue, which would likely unnerve investors and send the markets even lower.

The Federal Reserve has been in the spotlight in recent weeks, culminating with Fed chair Powell’s testimony before congressional and senate committees this week. Market attention will shift to the ECB next week, as policymakers meet on March 8. No major changes are expected, but members could discuss the possibility of removing the Bank’s easing bias towards increasing bond purchases if needed. A removal of the easing bias would likely be interpreted as a plan to tighten policy and would be bullish for the euro. Inflation remains weak, so there is little pressure on the ECB to tighten policy anytime soon. Recent indicators show that inflation in the eurozone is steady, but remains well below the ECB target of around 2 percent. Eurozone CPI dipped to 1.2% in February, down from 1.3% in January.

A Dizzying Day for Markets

Markets Rattled By Protectionist Trump

Economic Calendar

Thursday (March 1)

• 3:55 German Final Manufacturing PMI. Estimate 60.3. Actual 60.6
• 4:00 Eurozone Final Manufacturing PMI. Estimate 58.5. Actual 58.6
• 5:00 Eurozone Unemployment Rate. Estimate 8.6%. Actual 8.6%
• 10:00 US Fed Chair Powell Testifies

Friday (March 2)

• 2:00 German Retail Sales. Estimate 0.8%

*All release times are EST

*Key events are in bold

DAX, Friday, March 2 at 5:30 EDT

Open: 12,385.50 High: 12,391.00 Low: 12,232.00 Close:  11,962.50

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