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DAX Outlook: Auto Tariff Threat Puts EU-US Trade War Back in Focus

DAX Outlook: Auto Tariff Threat Puts EU-US Trade War Back in Focus

2018-11-27 15:40:00
Justin McQueen, Analyst
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DAX Analysis and News

  • DAX Dives as Trump Reportedly Mulls Auto Tariffs
  • Stakes are Raised for a Successful G20 Summit
  • EU Rebuts Initial Reports

DAX Dives as Trump Reportedly Mulls Auto Tariffs

The auto heavy DAX index briefly fell to session lows to break below 11300 and underperform its major counterparts after reports from German press that President Trump may impose auto tariffs at a rate of 25% as early as next week (after the G20 summit). As a reminder, auto names Daimler, Volkswagen and BMW, comprise of roughly 11% of the DAX index.

Stakes are Raised for a Successful G20 Summit

With these rather timely reports surfacing just ahead of the G20 summit, this subsequently raises the bar for Malmstrom and Juncker to ease tensions at the summit and avoid an escalation of trade wars between the US and EU. If, however, talks fail, this raises the likelihood that the Trump administration will look to place auto tariffs on the EU, which in turn increases the downside risks to an already challenging market for the Eurozone. Particularly in Germany, where the last quarter saw the first contraction in growth since 2015.

EU Rebuts Initial Reports

Following the reports from German press a spokesman has now rebutted these reports, stating that Malmstrom is not scheduled to meet Lighthizer. However, despite this, markets will likely keep a close lookout for any fall out regarding EU-US tensions.

Background of trade wars

  • Impact of Trade Wars, click here

DAX Price Chart: 1-Minute Time Frame (Intraday)

DAX Outlook: Auto Tariff Threat Puts EU-US Trade War Back in Focus

Chart by IG

IG Client Sentiment shows that 63.1% of traders are net-long with the ratio of traders long to short at 1.71 to 1. The combination of current sentiment and recent changes gives us a further mixed trading bias for the DAX.

How to Trade the DAX

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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