DAX slips to 2-week low as U.S treasury yields weigh on markets

The DAX index has posted considerable losses in the Friday session. Currently, the index is at 12,168 points, down 0.62% on the day. On the release front, German data was positive. Factory Orders jumped 2.0% in August, rebounding from a 0.9% decline in July. German PPI edged up from 0.2% to 0.3% in September.  In the U.S, nonfarm payrolls is expected to fall from 201 thousand to 185 thousand.

High yields on U.S treasury bonds continue to weigh on global equity markets. On Thursday, the yield on 10-year treasury notes hit 3.23%, the highest yield since May 2011. Eurozone bond yields have also risen, putting pressure on European stock markets. Earlier on Friday, the DAX dropped to its lowest level since mid-September.

Another factor weighing on European stock markets is the crisis over the controversial Italian budget. Last week, the new populist government proposed a controversial budget which increases spending, lowers taxes and set the budget deficit at 2.4% of GDP for the next three years. Italy has a massive debt, and the European Union doesn’t want Rome to expand the current deficit, which stands at 1.6% of GDP. The populist Italian government appeared to backtrack on this week, saying that the budget deficit could be lowered in 2020 and 2021. Still, the budget remains a sore point for the EU, and the risk appetite could slide if the EU and Italy remain at loggerheads over Italy’s fiscal policy. The budget must first be approved by Italy’s parliament and then by the European Commission, so this crisis could continue for some time.

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Economic Calendar

Friday (October 5)

• 2:00 Germany Factory Orders. Estimate 0.7%. Actual 2.0%
• 2:00 German PPI. Estimate 0.2%. Actual 0.3%
• 2:45 French Government Budget Balance. Actual -97.3B
• 2:45 French Trade Balance. Estimate -4.5B. Actual -5.6B
• 4:00 Italian Retail Sales. Estimate 0.2%. Actual 0.7%
• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change 185K

*All release times are DST

*Key events are in bold

DAX, Friday, October 5 at 6:50 DST

Previous Close: 12,244 Open: 12,246 Low: 12,135 High: 12,248 Close: 12,168

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