The DAX index has posted considerable losses in the Wednesday session. Currently, the index is at 11,713, down 0.54% on the day. In economic news, Eurozone Final CPI edged up to 2.1%, matching the forecast. Eurozone Final Core CPI edged lower to 0.9%, also matching the estimate. As well, EU leaders will hold a 2-day summit in Brussels. On Thursday, Germany releases WPI.
A decline in car sales in September has dragged the DAX lower on Wednesday. BMW (DE:BMWG) has dropped 1.14%, while Daimler (DE:DAIGn) has declined 1.28% and Volkswagen (DE:VOWG_p) has dropped 0.83%. European car sales plunged by 23% last month, primarily due to tough new emission tests, which the car companies have complained will hurt their bottom line.
EU leaders hold a summit later today, but Brexit will not be on the menu due to a lack of progress in the negotiations. On Tuesday, Michel Barnier, chief Brexit negotiator for the EU, offered to extend the transition phase by 12 months, which would leave it in place until December 2021. This would give the sides more time to work on the proposed customs union as well as the thorny issue of the Irish border. The EU is insisting that it will not sign a withdrawal agreement with Britain, unless there is a backstop which allows Northern Ireland to remain in a customs union with the EU after Brexit. However, the British government is unlikely to agree to such a move, since it would require regulatory barriers within the United Kingdom. With plans for a Brexit statement at Wednesday’s meeting on hold, a Brexit statement with have to wait until EU leaders meet in November or even December, which is uncomfortably close to the Brexit deadline in March 2019.
After plunging over 4 percent last week, the DAX has reversed directions and posted modest gains so far this week. Two key factors in the downward spiral of global markets are the recent spike in U.S bond yields and growing fears about the impact of the U.S-China trade war. The Italian budget has triggered a crisis between Italy and the EU, has also weighed on European markets in recent weeks. However, market sentiment is more positive this week, with Italian stock markets showing gains on Tuesday. Will these gains be short-lived? The budget proposed by Rome increases the deficit to 2.4% of GDP, which breaches EU rules that require lower deficits. The budget will be sent later this week to the Italian parliament for approval. If it is approved, Rome and Brussels appear headed for a collision which could hurt European stock markets as well as the euro.
Economic Calendar
Wednesday (October 17)
- 5:00 Eurozone Final CPI. Estimate 2.1%. Actual 2.1%
- 5:00 Eurozone Final Core CPI. Estimate 0.9%. Actual 0.9%
- Day 1 – EU Economic Summit
- Tentative -German 30-year Bond Auction
- 12:30 German Buba President Weidmann Speaks
Thursday (October 18)
- 2:00 German WPI. Estimate 0.4%
- Day 2 – EU Economic Summit
*Key events are in bold
DAX, Wednesday, October 17 at 8:35 DST
Previous Close: 11,776 Open: 11,822 Low: 11,692 High: 11,847 Close: 11,713
