DAX finds support after Auto Tariff Risks & Inflation Fears Grow

Market Update – 20 February 2025

Auto Industry Faces Tariff Headwinds

• Trump signals 25% auto tariffs, details expected in April.
• Current U.S. tariff: 2.5% | EU tariff: 10%.
• Luxury automakers may pass costs to customers, while mass-market brands could suffer more.
• Risk factor: If U.S. tariffs extend to Canada & Mexico, it could disrupt North American production.
• China retaliates with tariffs on U.S. combustion-engine vehicles, impacting European automakers producing in the U.S..
• Recent gains in European auto stocks may stall due to these trade uncertainties.

DAX Retreats from Record High

• DAX lost 500 points from its peak, pressured by:
• Inflation fears.
• ECB’s Isabel Schnabel suggesting rate cut cycle may end sooner than expected.

DAX Technical Analysis 4 Hour chart

• Despite this, European markets have been outperforming the U.S. YTD, reflecting optimism over a potential Trump-driven resolution to the Ukraine war.

• The Germany 40 (DAX) CFD 4-hour chart shows a retracement after reaching a recent high of 22,937.2. The price pulled back sharply but found support near the 22,400 region, where buyers stepped in. The 20 EMA is acting as dynamic resistance, and a sustained move above it could confirm a continuation of the uptrend.
• The RSI has rebounded from oversold levels, indicating that bearish momentum may be weakening. The Stochastic RSI is turning upward, suggesting that a potential bounce is forming. However, the price remains below recent highs, meaning that a retest of resistance near 22,800-22,937 is needed to confirm bullish continuation.
• If the price breaks above 22,800, it could lead to a retest of 22,937 and potentially 23,000. However, if selling pressure resumes, key support levels to watch are 22,400 and 22,200 (50 EMA region). A break below these could indicate a deeper correction toward 21,800-21,500. Traders should monitor whether the current rebound has enough momentum to reclaim previous highs or if another rejection leads to further downside.

 

U.S. Inflation & Deficit Concerns Intensify

• January CPI data fueled a reflation scare, with both headline & core inflation exceeding the Fed’s 2% target.
• Primary reason: Exploding fiscal deficit:
• FY25-to-date deficit: $786B, up $274B YoY.
• Massive government spending has driven up demand & price levels.
• Market reaction:
• Investors largely unconcerned about a fiscal cliff.
• Stock sentiment remains extremely bullish, fueled by AI optimism & U.S. economic resilience.
• Cash is out of favor – investors are overweight equities, particularly U.S. stocks.
• Contrarian take: This exuberance could be setting up for a sharp market correction.

The Trump Trade: Europe Poised to Outperform?

• Ukraine war hurt Eurozone economies, forcing Europe to buy 4x more expensive U.S. gas & rely on U.S. defense contractors.
• If Trump ends the war, Europe could resume cheaper energy imports from Russia, boosting competitiveness.
• Markets seem to be pricing in this scenario with Europe’s outperformance YTD.
• A weaker USD & underperformance of U.S. stocks could be the next macro shift.

Key U.S. Economic Events Today (Times in GMT+2)

• 15:30 – Philadelphia Fed Manufacturing Survey (Feb) → Expected 19.4 (Prev: 44.3) 📉
• 15:30 – Initial Jobless Claims → Forecast 215K (Prev: 213K) 📉
• 16:35 – Chicago Fed President Austan Goolsbee Speaks 🎤
• 17:00 – U.S. Leading Economic Indicators (Jan) → Expected 0.0% (Prev: -0.1%) 📉
• 21:30 – Fed Vice Chair for Supervision Michael Barr Speaks 🎤

Corporate News & Earnings

Alibaba’s AI Gains U.S. Traction

• Apple (AAPL) has chosen Alibaba’s AI for its next mobile update, beating DeepSeek & ByteDance.
• Investor interest surged, but analysts remain cautious:
• Consensus target: $115.86 (7% below current $124.73).
• Short interest up 18.34% in the last month.
• Earnings Report Today (Premarket):
• EPS Estimate: $2.84
• Expected price move: $9.39

Rivian (RIVN) Earnings Postmarket

• EPS Estimate: -$0.81
• Expected price move: $1.67

Market Outlook

• Auto stocks under pressure from tariff uncertainty.
• Europe outperforming U.S. YTD, potentially signaling a Trump-driven geopolitical shift.
• Investors euphoric on U.S. stocks, but risks of a fiscal-driven inflation shock loom.
• Alibaba’s AI partnership with Apple is a big win, but market sentiment remains cautious.
• Key earnings reports (Alibaba, Rivian) and U.S. economic data will drive short-term market moves.