DAX – Under Pressure as Trump Speech Looms

The DAX Index has posted small losses in the Monday session. Currently, the DAX is trading at 11,909.50 points. On the release front, Eurozone Private Loans increased by 2.2%, above the estimate of 2.1%. M3 Money Supply edged lower to 4.9%, matching the forecast. On Tuesday, the US releases Preliminary GDP, with an estimate of 2.1%. As well, President Trump will address a joint session of Congress.

There was good news for the eurozone on Monday, as bank lending to eurozone households improved for a third straight month, rising to 2.2% in January. Lending has been moving upwards since 2015, but has only recently shown strong gains. This could be a sign that the ECB’s stimulus program is finally bearing results. The central bank recently extended the QE program until December and is unlikely to end it earlier. Meanwhile, M3 Money Supply, which measures growth in the amount of money circulating in the eurozone, slowed to 4.8%, down from 5.0% a month earlier. This indicator is closely watched, as it often predicts economic activity.

In tandem with other stock markets, the DAX shrugged off the Federal Reserve’s January minutes. There were no dramatic hints as to the timing of the next move by the Fed. The most important comment was that policymakers believe that a rate hike “fairly soon” could be appropriate in order to head off an overheated economy. The minutes indicated that Fed policymakers remain confident that the central bank will raise rates gradually, given the strong performance of the US economy. At the same time, the minutes noted uncertainty about President Trump’s fiscal stimulus plan but little concern over the risk of inflation. So the million dollar question of when the Fed will press the rate trigger remains unanswered. Although pressure is slowly building towards a move by the Fed, there does not appear a sense of urgency to raise rates at the next meeting in March. According to the CME Group, the odds of a March hike are only at 17%, while the likelihood of a hike in either May or June stands above 40%.

President Trump’s administration has endured a rough first month, beset by constant friction with the media and trouble filling in key cabinet positions. Trump will address Congress on Tuesday and the nation will be listening closely. Will we see the combative, outspoken Trump, or will he opt for a more conciliatory approach? In order to pass key legislation, Trump will have to make nice with lawmakers from both sides of the fence, and this speech would be an ideal time to offer a hand of cooperation rather than combat. The markets will be looking for some details about the administration’s economic plan – if this is lacking, market sentiment could sour, dragging down the US dollar.

Economic Calendar

Monday (February 27)

• 3:00 Spanish Flash CPI. Estimate 3.3%. Actual 3.0%
• 3:00 Eurozone M3 Money Supply. Estimate 4.9%. Actual 4.9%
• 4:00 Eurozone Private Loans. Estimate 2.1%. Actual 2.2%
• Tentative – Italian 10-y Bond Auction

Tuesday (February 28)

• 8:30 US Preliminary GDP. Estimate 2.1%

*All release times are EST

*Key events are in bold

DAX for Monday, February 27, 2017

DAX, February 27 at 6:05 EST

Open: 11,849.50 High: 11,861.00 Low: 11,802.50 Close: 11,809.50

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