CMC Markets: DAX technically and seasonally struggling, with next Fed rate cut in jeopardy

Inflation driven by tariffs is becoming a significant issue in the U.S., and this late realization is leaving its mark on stock prices. The DAX is unable to maintain its gains, as it faces both technical and seasonal challenges. The uncertainty surrounding the ongoing trade negotiations with the U.S. only exacerbates the index’s struggles. Moreover, the anticipated monetary stimulus from the U.S. Federal Reserve appears to be diminishing.  

The U.S. technology index, Nasdaq, has experienced a false breakout despite positive news from Nvidia, failing to hold its new record high and falling back. This scenario, combined with an increasingly euphoric investor sentiment and a traditionally weak period for stocks, serves as a warning signal. Many investors have been ignoring the implications of tariff-induced inflation for too long.  

What investors had once counted on—a rate cut from the U.S. Federal Reserve in September—now seems uncertain. Although there are still two more inflation reports (including four with the PCE inflation data) before the next Fed meeting, the effects of tariffs on inflation are likely to increase and may become more pronounced in the upcoming reports.  

The likelihood of a worsening inflation situation in the U.S. before any improvement has risen. What was once considered a safe bet for a September rate cut has now turned into a scenario where the probabilities for either a pause or a cut are closely balanced.

Comment provided by Jochen Stanzl, Chief Market Analyst at CMC Markets.