DAX Jumps on Sparkling US ADP Employment Report, NFP Next

The DAX index has posted strong gains in the Friday session, climbing 1.1 percent. Earlier in the day, the DAX hit a new record high, climbing to 12,880.50. Currently, the index is trading at 12.862.50. On the release front, there are no eurozone or German events on the schedule. In the US, there are three employment indicators – Nonfarm Payrolls, wage growth and the unemployment rate.

It had been an uneventful week for the German stock exchange, but that has changed on Friday. The DAX has moved higher, boosted by an unexpectedly strong US ADP Nonfarm Payrolls report on Thursday. The ADP release pointed to a sharp increase in private employment in May, with a reading of 253 thousand. This was much stronger than the forecast of 181 thousand. Will the official government nonfarm payrolls report follow suit? The ADP release is often a good indicator of what to expect from nonfarm payrolls, and if NFP also jumps higher, the DAX rally could continue. German numbers have generally been strong, and the economy has been performing well. However, retail sales, the primary gauge of consumer spending, has raised concerns with some soft numbers in recent months. In April, retail sales declined 0.2%, compared to a forecast of +0.4%. This marked the third decline in 2017, further contraction in the second quarter could unnerve investor confidence in the German economy and weigh on the euro. Although the German labor market remains strong, this has not translated into higher inflation, which declined 0.2% in May, after a flat reading of 0.0% in April.

The Federal Reserve has sounded cautious about its plans for future rate hikes, but with less than two weeks to go before the Fed’s policy meeting on June 14, the markets are ever-more confident that rates will move higher for the second time this year. The odds of a quarter-point rate hike continue to rise, and according to the CME Group, currently stand at 91 percent. Low levels of inflation have become a head-scratcher for Fed policy makers, as inflation remains stubbornly low despite a red-hot labor market. As for additional rate hikes in the second half of 2017, the markets are much more skeptical, as the heady predictions that the Fed could raise rates up to four times this year have faded considerably. Currently, a September rate increase is priced in at just 27 percent.

Economic Calendar

Friday (June 2)

• 8:30 US Nonfarm Employment Change. Estimate 181K

*All release times are EDT

*Key events are in bold

DAX, Friday, June 2 at 7:35 EDT

Open: 12,738.50 High: 12,880.50 Low: 12,732.00 Close: 12,862.50

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