DAX – Slump in bank shares drag DAX to 4-week low

The DAX index has posted sharp losses in the Monday session. Currently, the index is at 11,993 points, down 0.93% on the day. There are no key events in Germany or the eurozone. German Industrial Production declined 0.3%, missing the estimate of 0.4%. The indicator has now declined four times in the past five months. In the eurozone, Sentix Investor Confidence dropped to 11.4 points, matching the estimate. On Tuesday, Germany releases trade balance.

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. On Monday, the DAX has dropped to its lowest level since September 12. Bank shares continue to struggle and are down sharply on Monday. Commerzbank has plunged 5.98% and Deutsche Bank has dropped 2.38%.

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 has tried to lower the flames, and last week said 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.

Italy and China drag markets lower

Economic Calendar

Monday (October 8)

• 2:00 German Industrial Production. Estimate +0.4%. Actual -0.3%
• 4:30 Eurozone Sentix Investor Confidence. Estimate 11.4. Actual 11.4

Tuesday (October 9)

• 2:00 German Trade Balance. Estimate 15.9B

*All release times are DST

*Key events are in bold

DAX, Monday, October 8 at 7:15 DST

Previous Close: 12,111 Open: 12,067 Low: 11,988 High: 12,070 Close: 11,993

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