DAX Closing in on 13,000, German Factory Report Surges

In the Friday session, the DAX has inched higher in the Friday session. Currently, the index is at 12,980.50, up 0.10% on the day. On the release front, German Factory Orders surged 3.6%, crushing the estimate of 0.7%. Later in the day, the US releases key employment numbers. Nonfarm Payrolls are expected to slip to 85 thousand, while Average Hourly Earnings is forecast to improve to 0.3%.

The DAX continues to trade at record levels, as it moves towards the symbolic 13,000 level. The index has posted gains this week and surged 6.0 percent in September, as the robust German economy continues to show post strong economic numbers. German Factory Orders climbed 3.6% in August, marking its sharpest gain in 2017. Earlier in the week, German Manufacturing PMI improved to 60.6 in September, its highest level since April 2011. German Services PMI has also been strong, pointing to expansion. However, inflation levels remain low in both Germany and the eurozone. On Tuesday, there was good news on the inflation front, as Eurozone PPI beat expectations with a gain of 0.3 percent. Is eurozone inflation on its way up? If upcoming inflation indicators follow suit and point upwards, the ECB will have to revisit tightening its ultra-loose monetary policy. With the eurozone showing sustained growth in 2017, the cautious ECB will be reluctant to tighten policy, unless inflation moves higher. However, the ECB will have to make some important decisions, as the bank’s current asset-purchase program is scheduled to terminate in December.

The constitutional crisis in Spain continues to deepen, and this has predictably sent Spanish stock markets lower. The Spanish and Catalan governments show no signs of backing down from their entrenched positions. The Catalan parliament has scheduled a meeting for Monday, saying it will consider declaring independence. However, Madrid has obtained a court order suspending the Monday meeting, which would mean that any Catalan lawmakers that defy the court and hold a parliamentary session could be arrested. Which side will blink first? The national government has yet to invoke article 155 of the Spanish constitution, which would allow the government to disband the Catalan parliament. This “nuclear response” could trigger a sharp reaction from Catalonia, which is still seething from the harsh crackdown by police which injured 900 civilians on Referendum Day.

Economic Calendar

Friday (October 6)

• 2:00 German Factory Orders. Estimate 0.7%. Actual 3.6%
• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change. Estimate 82K

*All release times are EDT

*Key events are in bold

DAX, Friday, October 6 at 6:25 EDT

Open: 12,978.50 High: 12,922.50 Low: 12,969.50 Close: 12,980.50

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