The DAX index has posted gains in the Friday session, after sharp losses on Thursday. Currently, the DAX is at 12,567, up 0.45% on the day. On the release front, the markets are digesting June PMI reports. Germany and the eurozone posted Services PMIs of 53.9 and 55.0, respectively, both of which beat the estimates. On the manufacturing front, German Manufacturing PMI dropped to 55.9, missing the estimate of 56.3 points. Eurozone Manufacturing PMI softened to 55.0, matching the estimate. Later in the day, OPEC members meet in Vienna to discuss a proposal to raise oil production.
The eurozone economy continues to perform fairly well, led by the robust German economy. PMI indicators are important barometers of the health of the economy. The good news is that services and manufacturing PMIs continue to indicate expansion in both the eurozone and Germany. However, this is not the entire story, as both manufacturing PMIs slowed for a sixth straight month, and the German release was the weakest since December 2016. With global protectionism on the rise as the trade war worsens, German and eurozone exports could suffer, which in turn would have a negative impact on manufacturers. If upcoming PMIs continue to weaken, investor confidence in the eurozone could wane and weigh down the already fragile European equity markets.
The escalating global trade war has taken a toll on the stock markets, and nervous investors had a chance to listen in on the heads of the U.S and EU central banks, who met at the ECB forum this week. Mario Draghi and Jerome Powell sounded gloomy about the recent protectionist moves, which were triggered by the U.S imposing tariffs on China, the EU and other trading partners. Powell saying that the changes in trade policy would have a negative effect on business hirings and investment, and could force the Fed to question its economic outlook. Mario Draghi said that the trade spat could have negative consequences on monetary policy. Although both central bankers didn’t provide any specifics, their apprehension over the rash of new tariffs is unmistakable. If the trade spat worsens and forces central banks to alter their monetary policy, this could have a significant impact on equity markets.
