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European Equity Markets Sag on Trade War Jitters

The DAX index has started the trading week with sharp losses. In the Monday session, the DAX is at 12,425, down 1.22% on the day. On the release front, there is just one event. German Ifo Business Climate dropped to 101.7 points, just shy of the estimate of 101.8 points.

After a rough week, European stock markets remain under pressure. The DAX declined 2.8% last week, and the French CAC slipped 1.8% over that time. Investors remain wary as President Trump has shaken up the markets by imposing stiff tariffs on China, the E.U and other trading partners. On Friday, the EU slapped retaliatory tariffs of some 25% on $3.3 billion of U.S goods. This move was in response to U.S tariffs on EU steel and aluminum imports. However, President Trump has more cards up his sleeves and has threatened to impose 20% tariffs on EU vehicles. This threat has sent automobile stocks on the DAX sharply lower on Monday. Daimler is down 2.29% and BMW has fallen 1.49%. On Thursday, Daimler said that trade tensions would affect its sales. BMW exports cars from the U.S to China and Europe, so the trade battles could have a negative impact on the company’s revenues. The EU has enough on its plate without a trade war with the U.S and has launched a complaint over the U.S tariffs with the World Trade Organization. Still, the EU has not shied away from retaliatory moves, with EU Commission President Jean-Claude Juncker saying that the EU’s response would be “clear but measured”.

The simmering trade dispute between the U.S. and its major trading partners remains a critical issue for global markets. The heads of central banks are concerned, and last week, Jerome Powell and Mario Draghi sounded gloomy about the repercussions that a trade war could have on economic growth and monetary policy. On Sunday, the Bank of International Settlements (BIS), also weighed in. The BIS acts as an umbrella group for some 60 central banks. The head of the BIS, Augustin Carstens, warned that recent protectionist moves could hamper global growth and financial stability, and could have negative side effects on the currency markets. At the same time, the BIS expressed support for the Federal Reserve raising interest rates gradually and for the ECB heading towards normalization as it winds up its massive asset program.

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