DAX Slips As EU Summit, Trade Tensions Weigh On Investors

The DAX index has resumed its losing ways in the Thursday session, after the index posted gains on Wednesday. Currently, the DAX is at 12,259, down 0.73% on the day. In economic news, GfK Consumer Climate remained pegged at 10.7, edging above the estimate of 10.6 points. EU leaders are meeting in Brussels for a 2-day summit. Later in the day, Germany releases Preliminary CPI, with an estimate of 0.2%. In the U.S, Final GDP is forecast at 2.2%, identical to the reading of Preliminary GDP in May. Friday will be busy as well, as Germany releases retail sales and the eurozone publishes CPI reports.

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 potential 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.

All eyes are on the EU Summit, with a host of critical issues on the agenda. These 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 to resolve this thorny issue. There have been various suggestions for a type of customs union, but none that are to the liking of both sides. European leaders are exasperated with the lack of progress in the Brexit talks and could issue a tough statement warning that the EU and Britain without an agreement in place.