DAX: Stock Market Hits Wall of Reality on Trump Trade Tariffs
Global stocks opened lower on Monday as trump kept hi promise on tariffs for China, Mexico, and Canada.
- Mexico and Canada hit with 25% tariffs
- ECB warns of risks of possible trade war
- HCOB Manufacturing PMI higher than forecasts
The DAX opened lower today and fell 2.44% from Friday’s close before recovering some ground. Global stock markets all felt the harsh reality of US trade tariffs, the NAS100 is down 1.8% and the FTSE is down 1.00%.
Trade Tariff Take Effect Tuesday 4
Trump signed an executive order that takes effect Tuesday, imposing 25% tariffs on all goods from Mexico and Canada. China has also been handed a 10% tariff on imports.
Mexico and Canada have both responded that they will also react with retaliatory tariffs. China has shown a more pragmatic approach, pledging to curb fentanyl precursor exports and invest in the USA.
The trade surplus of these countries means that the tariffs will hit the bottom line of these countries harder than it would the US. Cananda has a monthly trade surplus of $63.9 billion and Mexico a surplus of $71.8 billion.
At the same time, the USA has an abundance of resources and could be completely or almost independent. I believe tariffs may initially create some disruption for the US but will hurt these countries for longer.
DAX Live Chart
ECB Policy Hopes & Fears
The monetary loosening cycle of the ECB is keeping the DAX alive despite bout after bout of poor economic data from Germany.
The economy contracted for a second year in a row in 2024, various top manufacturers are closing plants and shedding thousands of jobs.
Exports to what once used to be its largest trading partner, China, are down and now the country is facing tariffs to its new number 1 export country, the USA.
The ECB has reiterated multiple times its intention to bring the main interest rate down to 2% in 2025. This seems to be the only factor keeping stock valuation of DAX companies at current levels.
Even the ECB has shown concern for the imminent trade war. Frenche central bank chief, Villeroy said that Trump’s decision to impose tariffs will increase economic uncertainty.
HCOB Manufacturing PMI Higher than Forecast
The above sounds like a positive headline, partially it is. The forecasts were for a number at 44, while the release showed the index improved to 45 from last month’s figure of 42.5.
However, a number below 50 shows a contraction in economic activity. And today’s number is way off the 50 mark, and it may take more than just lowering interest rates to spur economic activity.
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