Quick overview
- The market anticipates a 25 basis point cut in ECB interest rates today.
- Siemens Energy’s stock surged over 11% following a significant increase in second quarter profits.
- The DAX index opened up 0.63%, driven by investor optimism regarding trade tariff negotiations.
- Concerns about trade tariffs remain high, but a rate cut could help mitigate their impact on the euro.
Live DAX Chart
DAX
The market is widely expecting the ECB to cut rates by 25 basis points, Siemens Energy Jumps on earnings.
The DAX opened up 0.63% on the day as investors gain confidence in a positive outcome of the trade tariff negotiations. The index is led by a surge in Siemens Energy.
ECB Interest Rate Cut & Trade Balance
The DAX has been outperforming most peers despite 2 years of contracting GDP Growth. DAX stocks are heavily reliant on trade, as seen in the large trade surplus.
Exports account for around 47% to 50% of German GDP, it’s largest trading partners being the USA and China.
Trade tariffs are, therefore, a large concern for DAX investors. The ECB can help with its monetary policy by cutting interest rates.
Lower interest rates should weaken the euro and offset trade tariffs. A 25% trade tariff would be easily offset by a decline in EUR/USD of an equal proportion.
At today’s meeting the market has discounted a 25 bp cut in interest rates, from 2.65% to 2.40%. I doubt there will be any surprises, and what may cause volatility is the forward guidance from Lagarde at the press conference.
Siemens Energy & Tariff Concerns
Siemens Energy released earnings yesterday showing its best profit margins since Siemens AG spun off the business in 2020.
Second quarter profits increased more than 5-fold to €906 million, for a profit margin of 9.1% compared to forecasts of 6.2%.
The company raised its outlook for fiscal year 2025 to 4%-6% from 3%-5% previously.
Siemens Energy stocks were up over 11% this morning leading the DAX higher, the next best performer is Zalando up only 0.62%.
Investors are still weighing the possibilities of trade negotiations taking a positive turn. The best scenario I see would be the elimination of tariffs bilaterally.
Adding the ECB rate cut to the mix would then allow for further trade-fueled momentum for the DAX
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
