The Fed’s 2019 pause on rate hikes may not be enough if the US-China trade talks do not make further progress.
The German DAX index saw an interesting evolution on Wednesday. Down 1.57% and falling to the red zone this week, the year for this index continues to go from bad to worse.
In terms of data, wholesale inflation figures from Germany were the only major indicators that provide direction during the day. The less-than-expected producer price figures only had limited impact on the EUR, as the market participants are waiting for the FED.
While the Euro was steady ahead of the FOMC economic forecast and the FOMC press conference, market optimism about the US-China trade agreement had a big impact today.
For some time now, Europe’s auto sector under scrutiny. Concerns about the emissions scandals have turned to fears that a prolonged US-China trade war could have a big impact on profits.
BMW shares fell 4.57% on Wednesday, with the company saying that it expects a significant drop in profits and plans to achieve important cost savings. The scandal regarding the emissions caused an impact that continues throughout the sector, as car producers face higher costs for compliance with new laws and regulations.
BMW’s stark warning for next year has affected Volkswagen, which recorded a 2.22% loss after the trading session.
Interestingly enough, the bad news comes before the US administration strikes the European Union with a greater threat from tariffs on European car exports to the United States. With China’s economic growth sluggish and uncertainty regarding Brexit, the last thing the sector needs is tariffs.
On the other hand, the European Stoxx 600 and CAC were not far behind, recording losses of 0.78% and 0.8%, respectively.
After more cautious than expected FOMC, the positive result will be the possibility of a hold on interest rate hikes during the rest of the year. But unfortunately, the bad news could eventually hold back DAX and the rest of the majors.
The euro rose 0.55% to hit $1.14 for the first time since the first week of February. As major European companies have export-focused bias, a strong euro will not be beneficial in the near term.
The recovery of the euro and the decline in US Treasuries will also be bad news for European banks struggling in the current interest rate environment. Poor growth together with falling yields might be yet another blow. Another important bank, the Deutsche Bank saw its shares falling 3.32% on Wednesday. Unfortunately, not even the merger talks with Commerzbank Bank were able to help the company recover. Commerzbank also lost 2.08% during the day.
The lack of data today leaves the euro in the hands of the ECB Economic Bulletin. European and American futures are both falling at the time of writing this article. The Bulletin is unlikely to provide anything very beneficial for equity markets.
Big companies may have to wait until PMI figures for March change sentiment. If any expectations could materialize, any bullish trend might come from positive progress in the US-China trade talks.