FRANKFURT (dpa-AFX) - The escalation of the crisis in the Middle East and ongoing uncertainty about US President Donald Trump's trade policy continued to weigh on the DAX in the new week. In addition, the US Federal Reserve's interest rate decision is on the agenda.

The situation in the Middle East following the latest Israeli attacks on Iranian nuclear facilities is alarming and "may have caught many investors off guard," writes analyst Jochen Stanzl of broker CMC Markets. Those who have been looking for an excuse to sell shares are now taking action.

For capital market strategist Jürgen Molnar of Robomarkets, "the all-important question" is when and how Iran will retaliate and whether Israel's preemptive strike will result in a new war and thus ultimately in a conflagration in the region. In any case, Iran's foreign minister has already described Israel's major attack on his country as a declaration of war. According to the state news agency Irna, Abbas Araghchi said that Israel had crossed all red lines.

Mark Dowding, investment strategist at RBC BlueBay Asset Management, believes that the risks posed by the situation in the Middle East and the general geopolitical situation are being underestimated. He is also pessimistic about a resolution to the tariff dispute between the US and the EU. A deadline set by Trump for negotiations expires on July 9. In addition, few details are still known about the latest partial agreement in the US-Chinese tariff dispute. The market had hoped for more than the agreed easing of restrictions on exports of rare earths from China and semiconductors and aircraft parts from the US, explained DZ Bank analyst Soren Hettler.

According to Stanzl, new highs are not in sight for the German benchmark index for the time being. At the beginning of June, the DAX had set another record high at 24,479 points. According to Molnar, the stock market barometer has already broken through several technical support levels on its way down. It is now trading below the 21-day line, which is considered a short-term trend indicator. The 50-day line for the medium-term trend should now hold to prevent further losses.

On Wednesday after the close of trading in Europe, the US Federal Reserve will announce its future monetary policy. "The Fed will once again resist Donald Trump's push for the first key interest rate cut this year," believes Robert Greil, chief strategist at Merck Finck. This is because, although US inflation was again below market expectations in May, the future development of inflation remains uncertain. As part of its latest interest rate cut, the European Central Bank (ECB) also announced that it would now take a break in its monetary easing cycle. The rise in oil prices in the wake of the Middle East conflict is now adding to uncertainty about consumer price developments.

"Apart from the not particularly detailed trade deal with the UK, further real deals are still a long way off, despite all the announcements made by the US administration," emphasizes Greil. "This means that the Fed is still missing a key piece of the puzzle to be able to accurately assess the future inflation trend." Greil also considers an interest rate cut at the meeting at the end of July unlikely – "it will probably only come at the next meeting in September." The CME's Fed Watch Tool also suggests that the US monetary authorities will not touch the key interest rate this Wednesday.

Chinese retail and industrial production data on Monday should provide insight into the state of the world's second-largest economy. On Tuesday, the focus will be on corresponding data from the US and the Bank of Japan's interest rate decision. Following the Fed's decision on Wednesday, interest rate decisions in Switzerland, Norway, and the UK will follow on Thursday. Friday will then be dominated by the big expiry day on the futures exchanges.

The corporate agenda is clear. The Paris Air Show is in the spotlight, and capital market events by dialysis specialist Fresenius Medical Care (FMC) and US engine manufacturer GE Aerospace are scheduled for Tuesday. The latter was recently in the spotlight in connection with the crash of a Boeing 787 in India. However, the cause of the accident is still unclear. /gl/ajx/mis

--- By Gerold Lohle, dpa-AFX ---