Economy remains stable - ZEW and American inflation take center stage
The European common currency remained stable today, with 1 euro costing $1.1616, and 1 dollar equivalent to $0.8609. Meanwhile, the German stock market index, the DAX, saw a mixed performance on Tuesday. The index started trading barely changed, but an increase of 0.1 percent from the previous day's close was later recorded.
At 9:30 AM, the DAX was calculated at 24,090 points. However, the index has been under pressure due to concerns over German economic sentiment and mixed US inflation data, which are influencing expectations around the Federal Reserve's interest rate policy.
The latest market analysis shows that the DAX is experiencing near-term weakness and indecision. This is evident in the sharp decline in the ZEW Economic Sentiment Index in August. The index dropped from 52.7 to 34.7, well below expectations, and the Current Situation Index worsened from -59.5 to -68.6. This decline reflects disappointment with Germany’s Q2 economic performance and trade tensions, negatively impacting industries such as chemicals, pharmaceuticals, engineering, metal, and automotive sectors.
In the US, July inflation data showed annual CPI holding steady at 2.7%, slightly below consensus estimates of 2.8%. The modest increase in core inflation may temper the Fed’s enthusiasm for aggressive rate cuts but has increased short-term expectations for a possible September rate cut.
The focus today is on the ZEW survey results in Germany. The assessment of the situation in Germany is likely to be weaker than in the previous month, which could be a negative signal for the upcoming Ifo business climate. The potential inflation rate could also affect the Fed's interest rate expectations.
The oil price increased today, with a barrel of North Sea Brent blend costing $66.80 at 9 AM German time, 17 cents or 0.3 percent higher than the previous day's close. On the other hand, the Dax saw its largest two-day decline since early August, with leading DAX stocks like Hannover Rück, SAP, and Zalando recording the largest losses.
Despite the current challenges, positive sentiment from resilient US markets and hopes for Fed rate cuts may provide some upside potential for the DAX. This was evident in rallies among leading DAX stocks like Siemens Energy and Bayer. However, the German index remains vulnerable to domestic economic concerns and geopolitical risks, including the Ukraine conflict and trade issues.
Investors are watching critical support levels closely to gauge whether the DAX can reverse its recent weakness or face further downside. The US inflation data will be a focus in the afternoon.
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