DAX – Deutsche Bank Capital Raise Sends DAX Lower

The DAX Index closed the week above the 12,000 level, but has dropped lower at the start of the new trading week. In the Monday session, The DAX is trading at 11,981.89 points. On the release front, Eurozone retail sales were stable in February, as Retail PMI came in at 49.1, down slightly from 50.1 a month earlier. Eurozone Sentix Investor Confidence report improved to 20.7, beating the estimate of 18.8 points. On Tuesday, Germany releases Factory Orders, with the markets bracing for a sharp decline of 2.5%.

European stocks are broadly lower in the Monday session, as a capital raise by Germany’s Deutsche Bank as reduced investors’ appetite for risk.  The bank decided on a major reorganization on Sunday, which includes raising EUR 8 billion by issuing 687.5 million shares on March 21. Deutsche Bank has hit rough waters, and it seemed only a matter of time before it was forced took some drastic measures to right the boat. In December, the bank reached a $7.2 billion settlement with the U.S. Department of Justice for selling toxic mortgage-backed securities. Deutsche had a dismal 2016, with losses of EUR 1.4 billion. This capital hike is the fourth since 2010, and it remains to be seen if this move will attract investors and help set the bank in the right direction. Deutsche Bank shares are down about 1.0% on Monday, which has weighed on the DAX in the Monday session.

The euro dropped below the 1.05 line on Thursday, as EUR/USD dropped close to 7-week lows. Investors seized the opportunity and locked in profits on Friday, which helped boost the sagging euro. The pair gained 1.0% on Friday, marking its strongest 1-day gain since January 5. German Retail Sales disappointed, but this didn’t impede the euro’s rebound. Retail Sales declined 0.8%, well off the forecast of +0.2%. This marked a fifth decline of six releases, pointing to weakness in German consumer spending. Meanwhile, Eurozone inflation levels pointed higher in February. German Preliminary CPI rebounded posted a strong gain of 0.6%, matching the estimate. The Eurozone CPI Flash Estimate rose to 2.0%, hitting the ECB inflation target. Policymakers are now faced with a concern that they haven’t experienced in years – will inflation rise too fast, too quickly? The central bank could curb inflation by tightening monetary policy, but will be hesitant to tinker with interest rates or its asset-purchase program unless growth and inflation indicators heat up significant

With the US economy continuing to perform well, market sentiment has heated up regarding a Fed rate hike. Federal Reserve policymakers continue to sound hawkish about a rate move on March 15, when the Fed next meets for a policy meeting. Last week, FOMC members William Dudley and John Williams both hinted at an imminent hike by the Fed. Dudley said the case for a hike is compelling, while Williams noted that a rate increase will be up for “serious consideration” at the March policy meeting. The markets are taking these statements at face value, as the odds of a March move have increased dramatically. The likelihood of a rate this month has jumped to 80%, compared to 33% just a week ago. Why the huge jump in odds? One reason is that policymakers are now saying they won’t wait for Donald Trump to outline tax reform or other economic packages before making a monetary move. This is a significant departure from a few weeks ago, when the Fed sent out signals that it would stay on the sidelines until it had a clearer picture of the economic stance of the new administration.

Economic Calendar

Monday (March 6)

• 4:10 Eurozone Retail PMI. Actual 49.9
• 4:30 Eurozone Sentix Investor Confidence. Estimate 18.8. Actual 20.7
• 10:00 US Factory Orders. Estimate 1.1%
• 15:00 US FOMC Member Neel Kashkari Speech

Tuesday (March 7)

• 2:00 German Factory Orders. Estimate -2.5%

*All release times are EST

*Key events are in bold

DAX for Monday, March 6, 2017

DAX, March 6 at 7:00 EST

Open: 11,960.25 High: 11,998.50 Low: 11,027.50 Close: 11,981.89

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