DAX moves higher, markets await ECB rate statement

The DAX index has rebounded with strong gains on Wednesday, erasing the losses which marked the Tuesday session. Currently, the DAX is trading at 11,388, up 1.01% on the day. On the release front, German and Eurozone Manufacturing PMIs slowed in October and missed expectations. German Manufacturing PMI dropped to 52.3, short of the estimate of 53.4 points. The eurozone release fell to 52.1, down to 53.0 points. German and Eurozone Services PMIs followed a similar trend. Still, the manufacturing and services releases all indicated expansion. On Thursday, the ECB is holding its policy meeting and will set the main financing rate.

It’s been a volatile few days for the DAX, which started the week with sharp losses but has clawed its way higher on Wednesday. The positive trend could be due to profit taking, as investors snap up some stocks which dropped sharply. The DAX has fallen for five straight days, and Monday’s low of 11,228 was the index’s lowest level since December 2016. We could see further volatility on Thursday, with Germany releasing a key business confidence reports and the ECB publishing a rate statement.

All eyes are on the ECB, with policymakers widely expected to hold the course with interest rate levels, which have been pegged at a flat 0.00% for almost three years. However, there are no shortages of geopolitical hot spots, including the spike in Italian bond yields, the Brexit impasse and continuing volatility in global equity markets. Despite these issues, the ECB is expected to end its massive stimulus program in December. The markets are now looking ahead to 2019, focusing on the timing of a rate hike. The ECB has adhered to the line that rates will stay on hold “through the summer of 2019”. However, it’s unlikely that policymakers can ignore the issue of a rate hike, which would be a historic move, as the bank last raised rates in 2011. The head of the Dutch central bank, Klaas Knot, recently said that the ECB will have to initiate discussions over the timing of a rate hike in January. Investors will be listening closely to ECB members, as any hints of an interest rate move could send the euro upwards.

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Economic Calendar

Wednesday (October 24)

• 3:30 German Flash Manufacturing PMI. Estimate 53.4. Actual 52.3
• 3:30 German Flash Services PMI. Estimate 55.5. Actual 53.6
• 4:00 Eurozone Flash Manufacturing PMI. Estimate 53.0. Actual 52.1
• 4:00 Eurozone Flash Services PMI. Estimate 54.5. Actual 53.3
• 4:00 Eurozone M3 Money Supply. Estimate 3.5%. Actual 3.5%
• 4:00 Eurozone Private Loans. Estimate 3.2%. Actual 3.1%

*All release times are DST

*Key events are in bold

DAX, Wednesday, October 24 at 8:05 DST

Previous Close: 11,274 Open: 11,344 Low: 11,258 High: 11,392 Close: 11,388

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