US Rate Hike Talks to Dampen DAX

Analisi Giornaliera - 13/09/2016

German DAX plummets on the heels of a US rate hike


The DAX is still on the path of declines that had its uptrend reverse after Germany reported poor economic indications in the previous week. The month of July had the German Federal Statistical Office report declines in industrial production and the country’s trade balance. Adding further to the downwards pressure of the DAX were statements coming from major banks that will become less accommodative as the European Central Bank dampened all possibility in easing measures any further. Comments from Federal Reserve policymakers since Friday afternoon appear to be more hawkish stating that a rate hike is likely appropriate, leading to investor sentiment rattling the German Index and opening with a gap at the start of the week. The DAX declined by nearly 4.50% bottoming at a price of 10,309.00.

British Chambers of Commerce foresee a decline in growth

The British Chambers of Commerce has downgraded its UK growth forecasts as the national body predicts GDP values to come in at 1.80% in 2016 from initial estimates of 2.20%, 1.00% in 2017 from 2.30% and 1.80% in 2018 from 2.40%. The BCC comes in the wake after the UK has voted to leave the European Union in its June 23rd referendum. The main reason of the cutback in growth was expressed to be the slowdown in business investment as well as a decline in domestic spending even if the UK has not yet triggered the process of an exit. The Bank of England following on the referendum predicts a slowdown in growth and a surging inflation rate mostly weighed on the weakness of the sterling pound. On the heels of the downgrade, the pound dropped to 105.07 against the Japanese Yen.


The Fed is split into camps

The US dollar is experience mixed volatility as Federal Reserve officials continue to indicate mixed feelings as they speak about whether the central bank should leave or raise interest rates. Atlanta Fed President Lockhart continues to plead for a rate hike as the US economy is progressing reflecting upon a near full employment level while inflation is expected to rise as he sounded confident on the economy’s outlook. On the other hand, Fed Governor Brainard continues to insist on avoiding a rate hike expressing her concerns surrounding the unsettled global economic environment and low inflation rates. A more subtle official Fed President Neel Kashkari expressed that fiscal and regulatory reforms are what’s needed these day to help spawn the US economy while also take advantage of the current low interest rates.


Chinese economic data on the rebound

China’s economy appears to be stabilizing as new economic indications show a pick up in the economy. Even as the biggest economy of the world is said to transition from a manufacturer towards a service providing economy, industrial production for the month of August has achieved an ascend to 6.30%, leaving behind it expectations of 6.10% and previous month’s 6.00%. More upbeat news is an acceleration in retail sales over the same time period, a major help for meeting China’s growth forecasts for 2016 at levels of above 6.50%. Adding to earlier economic indications, the sanguine results so far lifts off pressure from the People’s Bank of China that foresees no more cuts for its current record low interest rates of 4.35% while at the same time avoid further cuts in its required reserve ratio.


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