DAX Gains Ground Ahead of ECB Decision

The DAX index has posted gains in the Thursday session. Currently, the DAX is trading at 12,497.00, up 0.45% on the day. In economic news, today’s highlight is the monthly ECB policy meeting. There was positive news from German and eurozone indicators. German PPI improved to 0.0%, above the estimate of -0.1%. The eurozone current surplus jumped to EUR 30.1 billion, well above the estimate of EUR 23.3 billion.

The ECB is on center stage on Thursday, as ECB members meet for the monthly policy meeting. The bank is expected to hold rates at 0.00%, where it has pegged since March 2016. Analysts will be keeping a close eye on the rate statement, as well as Mario Draghi’s press conference, which has been known to shake up the markets. With the eurozone economy showing improvement in 2017, there is some pressure on policymakers to tighten monetary policy. In December 2016, the bank tapered QE while extending the scheme until December, and this type of scenario could be adopted once again. Will the bank make a similar move at this meeting? As OANDA Senior Currency Analyst Craig Erlam explains, we’re unlikely to see any moves today, but the markets are casting a glance ahead to the September meeting:

While we’re not expecting any changes from the ECB today, it’s €60 billion a month asset program expires at the end of the year and traders are looking for clues regarding what comes next. An announcement on this is unlikely until September when it releases its new macro-economic projections but Mario Draghi may offer some insight into what we can expect during the press conference.

The most likely decision, despite the central bank still falling well short of its inflation target, will be to cut its purchases by another €20 billion as it did in April and extend by another six months. There has been a lot of speculation about a more explicit phasing out but I think the ECB want to be more careful given the fragile nature of the recovery. The result will likely be the same though with the central bank ending its quantitative easing program either at the end of 2018 or early 2019.

The German economy continues to perform well, despite concerns over Brexit and US President Trump’s protectionist stance. The German Finance Ministry was positively upbeat on Thursday, saying that “the current picture of economic indicators suggests that the economic upswing continued vigorously in the second quarter”. GDP expanded at a strong clip of 0.6% in the first quarter, and Q2 is expected to post another gain of 0.6%. The economy received a thumbs-up from the IMF, which has raised its growth projections to 1.8% in 2017 and 1.6% in 2018. If the ECB tapers its asset purchase program in September, as many analysts expect, economic growth could be even higher in the second half of the year.

It’s been another brutal week for the Trump administration, which is sorely in need of a legislative victory in Capitol Hill. One of Trump’s flagship projects has been replacing Obamacare, but that goal may have been dashed this week. Trump’s health care bill has stalled in the Senate before lawmakers even had a chance to vote on the proposal. With some conservative Republicans coming out against the bill, it’s questionable if the Republicans can pass another version before Congress takes a recess in August. Trump had promised to pass a health care before the summer break, so his credibility and popularity will take another hit if he’s unable to produce. Trump has been in office for six months, but has been unable to get Congress to pass any significant bills, even though the Republicans enjoy a majority in both houses of Congress. With this latest setback, there is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.  This paralysis on Capitol Hill has deepened investor pessimism about Trump’s legislative agenda and is weighing on the US dollar.

Traders Eye ECB Move in September

Will Draghi Drop Any Tapering Clues?

Economic Calendar

Thursday (July 20)

• 2:00 German PPI. Estimate -0.1%. Actual 0.0%
• 4:00 Eurozone Current Account. Estimate 23.3B. Actual 30.1B
• 7:45 ECB Minimum Bid Rate. Estimate 0.00%
• 8:30 ECB Press Conference
• 10:00 Eurozone Consumer Confidence. Estimate -1

*All release times are EDT

*Key events are in bold

DAX, Thursday, July 20 at 6:45 EDT

Open: 12,499.50 High: 12,549.50 Low: 12,487.50 Close: 12,497

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