Sector Highlights: Auto Stocks Slump Amid Tariff Concerns
Auto stocks led Tuesday’s losses, as US tariffs could hit the EU’s auto sector and manufacturing hubs in Canada and Mexico. Expectations of sweeping tariffs, focusing on autos, healthcare, and tech, fueled a market-wide sell-off.
- Auto Sector: Continental AG plunged 11.64%, while Daimler Truck Holding slid 7.84%. BMW, Porsche, Mercedes-Benz Group, and Volkswagen also posted heavy losses.
- Healthcare Sector: Fresenius Medical Care AG slumped by 9.29%, with Siemens Healthineers falling 3.03%.
- Tech Sector: Infineon Technologies and SAP ended the session down 5.16% and 4.64%, respectively.
Eurozone Unemployment Dips and ECB Rate Outlook
On March 4, Eurozone unemployment data challenged expectations of aggressive ECB rate cuts. The unemployment rate remained at 6.2% in January after December’s downward revision from 6.3%. Tighter labor market conditions may boost wage growth, consumer confidence, and spending. Rising spending trends could fuel demand-driven inflation.
Germany’s Fiscal Shift: How Will the DAX Respond?
On March 5, investors will react to Germany’s proposed fiscal reforms aimed at boosting defense spending and supporting an economic recovery. Key proposals include:
- Exempting defense and security spending from fiscal limits.
- €500 billion infrastructure fund targeting energy grids, housing, and transportation.
Frederik Ducrozet, Head of Macroeconomic Research at Pictet Wealth Management, remarked:
“What the German government just announced is nothing short of extraordinary. We’ve been waiting for a fiscal policy shift for twenty years; the US president got us there in ten days.”
DAX futures were up a whopping 465 points ahead of Wednesday’s European opening bell.
The news from Germany will limit the effects of finalized Euro area services PMI data on market sentiment.
US Markets Fall as Tariffs Roll Out
US equity markets posted losses on March 4 as President Trump rolled out tariffs on Canada, China, and Mexico. The Dow and the S&P 500 dropped 1.55% and 1.22%, respectively, on March 4, while the Nasdaq Composite Index fell by 0.35%.
Overnight, retaliatory tariffs from Canada and China heightened fears of a global trade war. However, US Commerce Secretary Lutnick hinted at de-escalation, saying Trump plans to roll back tariffs on Canada and Mexico.
Key Economic Data Ahead: US Services PMI and Labor Market in Focus
On March 5, the ISM Services PMI and labor market data will give insights into the US economy.
- Economists forecast the ISM Services PMI to fall to 52.6 in February, down from 52.8 in January. An unexpected slide below 50 (neutral level) could fuel fears of a US recession, increasing bets on multiple Fed rate cuts.
- Conversely, a higher PMI reading could signal a more hawkish Fed stance, weighing on risk assets. A prolonged period of higher Fed rates could increase borrowing costs and pressure corporate earnings.
- ADP is expected to report a 140k job rise in February, down from 183k in January. With the US Jobs Report looming, the ISM Services PMI may have more influence on the Fed rate path.
Trade tensions remain a wildcard, with EU-US relations in focus.
Near-Term Outlook
The DAX’s near-term trends hinge on:
- German fiscal policy: Progress on defense fiscal rules and an infrastructure fund.
- Trade tensions – Escalating US-EU and US-China trade disputes may create downside risks.
- US Services and Labor Market Data – The ISM Services PMI and US Jobs Report will affect Fed rate expectations, influencing DAX volatility.
If fiscal stimulus, easing trade tensions, and dovish central bank signals align, the DAX could rally toward 24,000. However, resistance to loosening Germany’s debt brake, escalating trade risks, and a hawkish Fed could drag the index below 22,000.
As of Wednesday morning, the Nasdaq 100 mini gained 135 points, signaling cautious optimism.
DAX Technical Indicators
Daily Chart:
Despite Tuesday’s slump, the DAX sits well above the 50-day and 200-day Exponential Moving Averages (EMAs). However, tariff-fueled volatility suggests potential short-term downside risks within the broader uptrend.
A return to 22,750 could enable the bulls to target the March 3 record high of 23,308 next. If the DAX breaks above 23,308, 24,000 would be the next major resistance level.
Conversely, if the DAX drops below 22,000, the 50-day EMA and 21,500 will be the next key support levels.
With the RSI at 52.43, the DAX remains below overbought levels (above 70), potentially allowing a move toward the 23,308 high.
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Bob Mason