DAX starts off 2019 in style, but will China spoil the party?

The DAX index lost ground over the weekend, but has steadied in the Monday session. Currently, the index is at 10,816, down 0.49% since the close on Friday. On the release front ,German and eurozone data disappointed. German WPI surprised with a decline of 1.2%, its weakest reading since December 2008. Eurozone industrial production fell 1.6%, much worse than the forecast of a 0.3% gain. On Tuesday, ECB President Draghi will testify about the ECB Annual Report.

With investors showing stronger risk appetite, the DAX has enjoyed a strong January, with gains of 3.4 percent. This is a far cry from the December meltdown of 8.4 percent, as equity markets try to shake off a horrendous 2018. Still, there are dark clouds on the horizon. The eurozone economy has slowed down, and weaker economic activity in China could spook investors. On Monday, China released dismal economic numbers, with exports down 4.4 percent from a year earlier and imports plunging 7.6 percent. The slowdown in China has taken a toll on corporate profits, with Apple and Jaguar Land Rover posting revenue warnings.

The ongoing global trade war continues to hamper manufacturing sectors across the eurozone. Last week, industrial production in Italy fell by 1.6% in November and in France the drop was 1.3%. The alarming trend continued on Monday, as eurozone industrial production declined 1.6%. Germany, the locomotive of the bloc, is also in trouble, in which industrial production has slipped for three straight months. With the three largest economies in the eurozone showing signs of weakness, conditions may not warrant any rate increases in the foreseeable future. The ECB winded up its stimulus program last month, and had expressed plans to raise rates later this year, but this will require stronger economic conditions in the eurozone.

 

Economic Calendar

  • 2:00 German WPI. Estimate 0.3%. Actual -1.2%

  • 5:00 Eurozone Industrial Production. Estimate 0.3%. Actual -1.7%

  • 5:00 Eurozone Trade Balance. Estimate 13.2B

  • 10:00 ECB President Draghi Speaks

Germany

Previous Close: 10,887 Open: 10,813 Low: 10,785 High: 10,856 Close: 10,833

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