The DAX index has started the week with strong gains. Currently, the pair is trading at 12,322, up 0.92% on the day. On the release front, German inflation disappointed. PPI dropped to 0.2%, short of the estimate of 0.4%.
There were no surprises from eurozone inflation reports in July. Final CPI came in at 2.1%, edging above the 2.0% gain in June. Final Core CPI followed the same trend, with a gain of 1.1%, compared to 0.9% in June. Both indicators matched the estimates. At the same time, inflation remains well below the ECB target of just below 2.0%, so an interest rate hike is unlikely before the second quarter of 2019. The focus remains on the ECB’s asset-purchase program, which is expected to wind up in December.
August has been dismal for German stock markets, and the DAX has declined 2.9% this month. However, the DAX posted gains last week, boosted by the announcement that the U.S and China had agreed to hold trade talks this week in Washington. This follows months of escalating trade tensions, which have dampened risk appetite. The U.S is unhappy with the Chinese protection of local markets and technology transfers required in order for U.S businesses to operate in China, but it’s questionable if the Chinese will show much flexibility. Both sides have slapped tariffs of $34 billion on each other’s products, with another $16 billion in tariffs scheduled for August 23. A dramatic breakthrough at the upcoming talks is unlikely, but if the upcoming tariffs are put on hold, investor sentiment would improve and the equity markets would likely respond with gains.