The DAX index has reversed directions on Wednesday and is in red territory. In Tuesday’s North American session, the DAX is at 12,268, up 0.17% on the day. In economic news, there are no major eurozone events. On Thursday, EU leaders meet for a two-day summit in Brussels. Germany will release GfK Consumer Confidence and Preliminary CPI.
European equity markets remain under pressure, as investors cast a nervous eye on the escalating trade tariff between the U.S and its major trading partners. The DAX has lost 2.0% so far this week, and there is more downside if trade tensions worsen. 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. President Trump didn’t blink and has threatened to impose 20% tariffs on EU vehicles. This threat sent automobile stocks on the DAX sharply lower on this week, as Daimler and BMW recorded steep declines. 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 markets are keeping a close eye on the EU summit. Key issues include EU immigration policy, the simmering trade dispute with the U.S, and the stalled Brexit negotiations. Investors will want to see some progress on these issues rather than the leaders highlighting their differences or bashing the Brits. Will EU leaders stick to their guns on the tariffs or offer Trump an olive branch? U.S tariffs will take a toll on the European export sector, and many EU members will want to lower the tensions with the Trump administration. On the Brexit front, the EU had said that it wanted issues such as the Irish border to be resolved by the June summit, but this won’t happen, and the EU will now have to set another deadline, with time running out. There have been various suggestions for a type of customs union arrangement between Ireland and Northern Ireland, but the May government is split on the issue, much to the frustration of EU leaders.
