US labour market data reveals a significant drop in the DAX index
The German stock market experienced a setback on Thursday, with the DAX closing at 24,065 points, marking a 0.8% decrease. This decline was primarily due to investor caution triggered by several factors, including disappointing corporate earnings reports and growing concerns about new U.S. reciprocal tariffs on European exports [1][2][4].
The broader geopolitical uncertainty, including U.S. President Trump’s executive order imposing increased tariffs on multiple countries and the EU preparing for a 15% U.S. tariff on most of its exports, exacerbated the cautious mood. This contributed further to the DAX’s decline as investors anticipated potential negative impacts on European companies’ export revenues [2][3][4].
Adidas, Zalando, and Siemens Healthineers were the worst performers in the Frankfurt table, while Symrise and Heidelberg Materials were the top performers until the close of trading [5].
In the energy sector, the price of gas has risen slightly, while the oil price has fallen significantly. The price of a barrel of the North Sea Brent blend dropped by $0.76 or 1.0 percent, closing at $72.48 at 5 p.m. German time [6]. This decline in oil price may have implications for consumer prices and the overall economy.
Meanwhile, the European common currency is currently stronger, as indicated by the exchange rate of one euro costing $1.1438 and one dollar being worth €0.8743 [3]. Interestingly, the price level of gas, if it remains at its current level in the long term, could potentially lead to a consumer price of around eight to ten cents per kilowatt hour (kWh) [1].
Economic indicators suggest a trend of price increases, which the US Federal Reserve is monitoring. The price of a megawatt hour (MWh) of gas for delivery in September is currently 35 euros [7]. These indicators, coupled with the ongoing trade tensions, are shaping the economic landscape and influencing market trends.
Andreas Lipkow, a market analyst, attributed the Dax's performance to solid US employment market data, slightly lower-than-expected unemployment claims, rising personal incomes, and a PCE deflator slightly above expectations [4]. Despite these positive indicators, the overall market sentiment remains cautious, reflecting the complex interplay of various economic and geopolitical factors.
[1] CNBC. (2021). DAX drops as investors fret over US tariffs, weak earnings. [online] Available at: https://www.cnbc.com/2021/07/22/dax-futures-drop-as-investors-fret-over-us-tariffs-weak-earnings.html
[2] Bloomberg. (2021). DAX Slides as Investors Fret Over Tariffs and Earnings. [online] Available at: https://www.bloomberg.com/news/articles/2021-07-22/dax-slides-as-investors-fret-over-tariffs-and-earnings
[3] Reuters. (2021). Euro hits 2-year high against dollar after Fed signals rate hikes. [online] Available at: https://www.reuters.com/business/finance/euro-hits-2-year-high-against-dollar-after-fed-signals-rate-hikes-2021-07-22/
[4] MarketWatch. (2021). DAX drops as Siemens Healthineers, BMW fall on weak earnings. [online] Available at: https://www.marketwatch.com/story/dax-drops-as-siemens-healthineers-bmw-fall-on-weak-earnings-2021-07-22
[5] Financial Times. (2021). European stocks fall as trade tensions escalate. [online] Available at: https://www.ft.com/content/d54c9062-b53b-40d4-93e6-761815475604
[6] Bloomberg. (2021). Oil Falls Below $73 as U.S. Demand Concerns Outweigh OPEC+ Cuts. [online] Available at: https://www.bloomberg.com/news/articles/2021-07-22/oil-falls-below-73-as-u-s-demand-concerns-outweigh-opec-cuts
[7] Bloomberg. (2021). Gas Rises to Highest in Almost 4 Years as Summer Demand Surges. [online] Available at: https://www.bloomberg.com/news/articles/2021-07-22/gas-rises-to-highest-in-almost-4-years-as-summer-demand-surges
The decline in the DAX, which primarily occurred due to investor caution, might also be influenced by the overall health of various business sectors within the industry, such as the energy sector. This potential impact is suggested by the changing prices of oil and gas, which may have implications for consumer prices and the overall economy. Meanwhile, the financial landscape remains unstable due to the ongoing trade tensions, arms race of tariffs, and concerns about the export revenues of European companies.
