DAX Subdued Ahead of Eurozone Consumer Confidence

The DAX index is almost unchanged in the Thursday session and is currently at 12,769.25 points. On the release front, we’ll get a look at Eurozone Consumer Confidence, which is expected to remain at -3 points. On Friday, Germany and the eurozone will release manufacturing PMIs, with the markets forecasting that both indicators will point towards expansion.

The eurozone economy has improved in 2017, and much of the credit goes to Germany, the largest economy in the bloc. Germany’s manufacturing and export sectors have been buoyed by stronger global demand for German products. There were cries of despair in political and business circles when Donald Trump was elected, as Trump campaigned on a protectionist, “America first’ agenda. However, these concerns have largely died down, as the economy has performed well and Trump has been in damage control mode, as he focuses on domestic scandals. Earlier this week, the well-respected German BDI Federation of Industry added its voice to the chorus of accolades for the German economy. The BDI said that Germany’s economic output would increase by 1.5% this year. At the same time, the BDI counseled caution, noting that the economy had been buoyed by a weaker euro, lower oil prices and the ECB’s accommodative monetary policy. All three are ‘external factors’, in the sense that Germany has limited influence on them, and a significant change in any one factor could weigh on economic growth.

The Federal Reserve has shown its hawkish teeth lately. In addition to raising rates last week, the Fed announced plans to reduce its balance sheet in the near future. The balance sheet has ballooned to $4.5 trillion, which accumulated after the 2008 financial crisis when the Fed went on a bond-buying spree to stimulate the economy. The reduction will be gradual, but still marks an important change in direction for the central bank. It’s not clear when the Fed will start to trim. FOMC member Patrick Harker said on Wednesday said that he was in favor of the reduction commencing in September, but added that the Fed had yet to determine a start date. As for additional rate increases, the Fed has hinted at one more rate hike in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy.

Philly Fed Harker Says Balance Sheet Could Start Shrinking in September

Economic Calendar

Thursday (June 22)

• 4:00 ECB Economic Bulletin
• 10:00 Eurozone Consumer Confidence. Estimate -3

Friday (June 23)

• 3:30 German Flash Manufacturing PMI. Estimate 59.1
• 4:00 Eurozone Flash Manufacturing PMI. Estimate 56.9

*All release times are EDT

*Key events are in bold

DAX, Thursday, June 22 at 7:00 EDT

Open: 12,767.50 High: 12,782 Low: 12,716 Close: 12,769.25

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