The DAX index continues to move higher this week. On Wednesday, the DAX is at 10,905, up 1.13%. German automakers have led the charge – BMW is up 2.0%, Daimler has climbed 4.7% and Volkswagen has gained 3.0%.
In economic news, German and eurozone numbers were stronger than expected. German’s trade surplus jumped to EUR 19.0 billion, above the estimate of EUR 17.9 billion and hitting a 5-month high. As well, the yield on German 10-year bonds continues to fall, with a reading of just 0.29%, its lowest yield since June 2017. The eurozone unemployment rate unexpectedly fell to 7.9%, its lowest level since October 2008.
It’s been a wild ride for the markets in recent weeks. Markets plunged in December, with the DAX falling a staggering 8.4%. The year 2018 was the worst since 2008, but 2019 has started on a bright note. The DAX has climbed 4.24% in just one week, as risk appetite has returned.
There are two main reasons for renewed market optimism. First, Fed Chair Jerome Powell sent a dovish message to the markets, in sharp contrast to the Fed rate statement in December, which was more hawkish than expected and was poorly received by the markets. Powell said that the policymakers would be cautious before making any rate decisions, a strong hint that the Fed will not continue its aggressive rate policy, with four rate hikes in 2018. Policymakers have been talking about one or two hikes in 2019, and some analysts are predicting a rate cut late in the year.
A second catalyst for stronger investor confidence is renewed hope that the U.S. and China could reach a deal and end their nasty trade war, which has rocked global equity markets for months. This week’s meeting between the parties wrapped on Wednesday, after the trade talks, which were slated for two days, were extended by a day. The stakes are high, as President Trump has threatened to impose higher tariffs on $250 billion worth of Chinese products if there is no deal by March 1.
