The DAX extended its losses on Thursday, March 27, falling 0.70% to 22,679. President Trump’s announcement of auto tariffs triggered a flight to safety.
On March 26, Trump unveiled a 25% tariff on car imports into the US, with reciprocal measures expected next week. Higher tariffs could drive import prices higher, impacting demand for German goods. In turn, weaker demand may affect trade terms.
The auto sector bore the brunt of Trump’s tariff announcement. Although recovering from heavier losses, Mercedes Benz Group slid 2.69%, with BMW and Porsche falling 2.55% and 2.51%, respectively. Volkswagen and Daimler Truck Holding also ended in negative territory.
The prospect of tariffs on semiconductors added to the gloomy mood, dragging Infineon Technologies down by 2.96%. Investors now await reciprocal US tariffs, which may target the pharmaceutical and tech sectors.
On Friday, March 28, economic data from Germany could offer some distraction from the tariff noise.
Economists expect Germany’s GfK Consumer Confidence Index to rise from -24.7 in March to -23.0 in April. An upswing in consumer sentiment could signal increased domestic consumption, supporting hopes for an economic recovery.
Labor market conditions remain critical. Economists forecast the unemployment rate to remain at 6.2% in March. However, an unexpected rise in unemployment could signal a more dovish ECB rate path, driving demand for rate-sensitive stocks.
Still, trade uncertainty is likely to remain the key market driver on March 28.
Daniel Kral, Europe macro specialist at Oxford Economics, highlighted the potential impact of US tariffs on the EU, stating:
“EU countries differ widely in their exposure to the already announced US tariffs on cars, pharma, and steel exports. Highest exposure on pharma (often receiving tax incentives): Ireland, Belgium, and Australia. On cars: Slovakia, Germany, and Sweden. In total, around 1% of GDP of EU exports are currently affected.”
US data on Thursday, March 27, pointed to a resilient US economy. Initial jobless claims slipped from 225k (week ending March 15) to 224k (week ending March 22). Stable labor market conditions may support wage growth and consumer spending, which contributes over 60% to US GDP.
A revised GDP estimate for Q4 2024 further bolstered confidence. The US economy expanded by 2.4% quarter-on-quarter in Q4 2024, up from a preliminary 2.3%, while down from 3.1% in Q3 2024.
Despite solid data, US equity markets came under renewed selling pressure on Thursday, March 27. Trump’s tariff policies continued to fuel concerns about the economic outlook and the Fed’s policy stance. The Nasdaq Composite Index dropped 0.53%, while the Dow and the S&P 500 fell 0.37% and 0.33%, respectively.
Turning to the US session on Friday, March 28, the all-important Personal Income and Outlays Report will influence market risk sentiment.
Economists expect the Core PCE Price Index to rise 2.7% year-on-year in February, up from 2.6% in January.
A higher inflation print combined with tariff pressures could dampen bets on a June Fed rate cut. A more hawkish Fed stance may impact demand for risk assets. Higher borrowing costs may impact corporate earnings.
Conversely, a softer inflation reading could boost expectations of multiple Fed rate cuts, driving demand for rate-sensitive stocks.
While inflation trends are key, personal income and spending trends will give insights into the inflation outlook. Higher income and spending could suggest demand-driven inflation, another factor for traders to consider.
Traders should also closely monitor tariff-related headlines and FOMC commentary on inflation and monetary policy.
The DAX’s direction will depend on several key drivers: German unemployment data, the US Personal Income and Outlays Report, tariff-related news, and central bank commentary.
Potential DAX Scenarios:
As of Friday morning, the DAX futures were down 50 points, while the Nasdaq 100 mini dropped 22 points, pointing to a choppy session.
Despite recent losses, the DAX remains above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling strong bullish momentum. However, tariff-driven volatility remains a near-term downside risk.
With the RSI at 49.64, the DAX remains above oversold levels (below 30), leaving room for a drop to 22,000.
Investors should remain focused on the US Personal Income and Outlays Report, ongoing US-EU and US-China trade tensions, and central bank commentary. These elements will likely dictate market direction in the coming sessions.
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With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.