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DAX Slide Continues On US-China Trade Tensions

The DAX index has posted sharp losses in the Friday session, after dropping close to 1.0 percent on Thursday. Currently, the index is at 12,395, down 0.79% on the day. On the release front, German retail sales came in at -0.4%, missing the estimate of -0.1%. This marked the second decline in three months. On the inflation front, Eurozone CPI Estimate posted a gain of 2.0%, just shy of the forecast of 2.1%.

Eurozone inflation is expected to tick lower in August, but still remain close to the ECB target of just under 2 percent. CPI Flash Estimate dropped from 2.1% to 2.0%, shy of the estimate of 2.1%. Core CPI is also forecast to tick lower to 1.0%, missing the estimate of 1.1%. Earlier in the week, German Preliminary CPI rose 1.9% in August (year-on-year), down from 2.1% a month earlier. These releases were within expectations, and the slight easing in inflation is unlikely to change plans at the ECB. The central bank is scheduled to wrap up its EUR 2.6 trillion asset-purchase scheme in December. However, it’s unclear when the ECB will raise interest rates. ECB policymakers have been somewhat vague on the issue, saying that rates will not rise until after next summer. Some analysts have circled October 2019 as a possible date for the first ECB rate hike in years.

The trade war between the US and China continues to spook investors. The trade war has hurt Chinese exports, as the “new export order” subindex in China’s official PMI dropped below 50 in August, the third straight month that the index has contracted. President Trump has threatened to slap additional tariffs on some $200 billion of Chinese products, a move which could take place as early as next week. Further tariffs would have a damaging effect on the Chinese economy, and it’s likely that China would respond in kind. The current trade spat has already taken a toll on the equity markets and this is trend is likely to continue if there is no improvement in the troubled trade relationship between the U.S and China.