DAX Edges Higher, Markets Eye German Preliminary CPI

The DAX index continues to have a quiet week. In the Tuesday session, the DAX is trading at 12,613.75 points. On the release front, German Import Prices declined 0.1%, short of the forecast of +0.2%. Later in the day, Germany releases Preliminary CPI, which is expected to decline 0.1%. On Wednesday, Germany releases Retail Sales and the Eurozone publishes CPI Flash Estimate.

The markets were all ears on Monday as ECB President Mario Draghi testified before the EU parliamentary committee for economic affairs. Draghi acknowledged that the euro-area economy was improving, but said that inflation and wage growth remained weak, requiring the ECB to maintain”very accommodative financing conditions. The central bank’s asset-purchase scheme is due to wind up in December, and stronger euro-area data had raised speculation that the central bank might revisit its monetary stance and perhaps taper the program at the June policy meeting. Draghi’s message, however, remains one of caution, with the ECB unlikely to make any significant moves at the June policy meeting.

There were serious questions about the eurozone economy at the start of 2017. Britain’s stunning vote to depart the European Union sent shock waves across the continent, with EU members fearing that the move could invigorate euro-skeptics and threaten the integrity of the EU. The jitters increased as Donald Trump was sworn in as US president, who ran on a protectionist campaign of “America first”. Fast forward to the month of May, and the picture has brightened considerably. Donald Trump has managed to tussle with German Chancellor Angela Merkel and Brexit remains a serious challenge for the EU, but the political and economic landscape has shifted for the better. Fears of a populist wave across the continent have receded, as nationalist, anti-EU parties failed to win elections in the Netherlands and France. On the economic front, indicators continue to point upwards, as unemployment has dropped and growth is higher. The EU Spring Forecast has forecast Eurozone GDP to rise 1.7% in 2017 and 1.8% in 2018, with growth in the EU expected at 1.9% for both years. Investors have climbed on the bandwagon, as the DAX has jumped 10.3% since the start of the year, and continues to hit record highs.

Euro Geopolitical Fears Sap Risk Appetite

ECB to review improved growth, declining risks in June: Draghi

The US economy slowed down considerably in the first quarter of 2017, and there are no indications as of yet that we’ll see a rebound in the second quarter. Will this lead to the Fed rethinking a June rate hike? The markets don’t appear concerned, as the odds of a 0.25% rate hike have increased to 84%. At the same time, the likelihood of a rate hike in the second half of 2017 are low. The odds for a September rate are just 26%, with the markets unclear on whether the Fed will make further moves this year if inflation remains below the Fed target. Political concerns are a serious worry, as the Trump administration is embroiled in scandals, with several congressional investigations probing into Trump’s alleged connections with Russian politicians. A weakened White House raises doubts if Trump will be able to keep his election promises to lower taxes and cut government spending.

Inflation is the Key

Economic Calendar

Tuesday (May 30)

• 2:00 German Import Prices. Estimate 0.2%. Actual -0.1%
• All Day – German Preliminary CPI. Estimate -0.1%

Upcoming Key Events

Wednesday (May 31)

• 2:00 German Retail Sales. Estimate 0.4%
• 3:55 German Unemployment Change. Estimate -14K
• 5:00 Eurozone CPI Flash Estimate. Estimate 1.5%
• 5:00 Eurozone Core CPI Flash Estimate. Estimate 1.0%

*All release times are EDT

*Key events are in bold

DAX, Tuesday, May 30 at 6:25 EDT

Open: 12,591.50 High: 12,648.25 Low: 12,566.50 Close: 12,613.75

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