DAX at Highs; Markets Rally as Trump Softens Tariff Stance

Trump’s Softer Stance on Tariffs and Its Ripple Effect

The financial markets are reacting to President Trump’s surprising shift in tone regarding trade tariffs. In a notable departure from his campaign rhetoric, Trump expressed a preference to avoid tariffs on Chinese imports, signaling that a trade deal with China is still possible. This more conciliatory approach has eased tensions and contributed to a pullback in the U.S. dollar, which had previously been buoyed by his aggressive stance.

Asian equity markets responded positively to the news, with indices across the region posting gains. Investors appear to be encouraged by the potential for improved trade relations, which could stabilize global economic growth. The more optimistic sentiment helped the Nikkei, Hang Seng, and other Asian benchmarks close higher.

The Bank of Japan’s Rate Hike and Economic Outlook

In Japan, the central bank raised interest rates by 25 basis points to 0.5%, marking its highest policy rate in 17 years. The Bank of Japan also revised its inflation forecasts upward, citing rising wages and stable economic conditions as factors that should keep inflation around its 2% target. This move was widely anticipated, but it reinforces Japan’s commitment to normalizing monetary policy after years of ultra-loose conditions.

European Markets: A Stellar Start to the Year

Germany’s DAX reached a fresh all-time high yesterday, while the EURO STOXX 50 posted a 6% gain YTD, outpacing even the U.S. markets. The CAC 40 has also performed exceptionally well, riding on a wave of optimism that has fueled buying activity across the region.

Analysts note that the European market rally is underpinned by an improved earnings revision rate, signaling stronger-than-expected corporate performance in the region. While expectations for U.S. corporate profits have remained steady, European analysts have marginally revised 2025 earnings forecasts downward. However, this hasn’t deterred the bullish momentum in Europe, where valuations remain relatively attractive.

DAX Technical analysis 1 Day chart

The Germany 40 (DAX) CFD daily chart shows a strong bullish breakout beyond the upper trendline of the ascending channel, confirming continued buying pressure. The price remains well above the 50, 100, and 200 EMAs, all of which are trending upwards, underscoring the sustained bullish trend. This suggests buyers are firmly in control, with momentum building for higher highs.

However, the RSI is now at 83, well into overbought territory, while the Stochastic RSI sits at extreme levels near 100. These indicators signal potential short-term exhaustion, increasing the likelihood of a consolidation or corrective pullback in the near term. Such overbought conditions typically warrant caution for new entries, as risk of a reversal increases.

Traders might monitor key support levels, including the breakout area around 21,072 or the 50 EMA, as potential zones for price to retest and bounce. On the flip side, a continued rally above current levels would indicate strong bullish conviction, potentially targeting new highs. Overall, while the long-term trend remains bullish, the overbought signals suggest a near-term retracement may occur.

U.S. Markets: Record Highs Amid Mixed Sentiment

The S&P 500 closed at a fresh record high yesterday, reflecting strong investor confidence in the resilience of the U.S. economy. However, U.S. futures are mixed today, with a softer open expected on Wall Street. The FTSE 100 and DAX, in contrast, are poised for a higher start, underscoring the divergence in global equity performance.

President Trump also outlined plans to roll back Biden-era regulations, which he claimed cost $50,000 per person, and vowed to implement the largest tax cut in U.S. history. These measures are aimed at incentivizing domestic production and reducing costs for American citizens. Trump’s message to manufacturers was clear: produce in America to benefit from low taxes, or face tariffs that could inject hundreds of billions of dollars into the U.S. Treasury.

Corporate News: AI and Tax Cuts Drive Headlines

Tech and corporate developments remain in focus as markets digest Trump’s $500 billion AI infrastructure plan, involving Oracle, OpenAI, and SoftBank. Oracle shares jumped nearly 9% in premarket trading after Trump highlighted its prominent role in the initiative. However, not everyone is optimistic; Elon Musk criticized the plan, questioning the financial backing of its supporters.

In other corporate news, the earnings season starting big next week is expected to provide additional market drivers.

Economic Data on the Radar

Today’s economic calendar features several high-impact data releases that could influence market sentiment:

• 14:45 (USD): S&P Global Manufacturing PMI – Expectations stand at 49.8, up slightly from the previous 49.4. A higher reading could signal improving conditions in the manufacturing sector.
• 14:45 (USD): S&P Global Services PMI – Forecasted at 56.4, slightly below the previous 56.8. Services continue to be a key driver of U.S. economic growth.
• 15:00 (USD): Existing Home Sales (Dec) – Analysts expect a slight rise to 4.19M from 4.15M, indicating resilience in the U.S. housing market.

Have a great trading day, and a good weekend.

 

Kind regards,

 

Philip J. Papageorgiou