Investors are viewing the DAX’s drop below the 24,000-point mark as a buying opportunity. Despite weaker seasonal trends, uncertainty surrounding the outcome of tariff negotiations, and recent profit warnings from sectors such as chemicals, market participants are optimistic about a second half of the year that promises improved fiscal and monetary conditions.
New threats from President Trump against Federal Reserve Chair Jerome Powell are causing concern among investors. Should Trump succeed in removing Powell, it could lead to a significant depreciation of the U.S. dollar. This potential decline would adversely affect European export companies, while simultaneously increasing the returns for U.S. dollar investors, particularly those who have invested in the DAX in recent months. Since the beginning of the year, the DAX has risen by 37% when measured in dollars, compared to just 6.5% for the S&P 500.
Even if Trump fails to remove Powell—a legally challenging endeavour—the race for Powell’s successor is very much underway. The Trump administration is rapidly increasing its debt, and current yields on 10-year Treasury bonds, hovering just under 5%, as well as over 5% for 30-year bonds, do not align with Trump’s economic strategy. He is pushing for lower yields, yet his tariff policies contribute to inflationary pressures, causing the Fed to hesitate in lowering rates. This week’s inflation report has already led markets to assign a lower probability to a rate cut in September.
Comment provided by Jochen Stanzl, Chief Market Analyst at CMC Markets.
