DAX Dips, Markets Eye US GDP

The DAX index has posted slight losses in the Friday session. Currently, the DAX is trading at 12,527.00 points. For a second straight day, there are no releases out of Germany or the eurozone. It’s a busy day in the US, highlighted by Second Estimate GDP, which is expected to post a gain of 0.9%. Leaders of the G7 are gathered in Sicily for a two-day meeting, with the response to global terror high on the agenda, especially in light of the Manchester bombing earlier this week.

With the German economy firing on all cylinders, Chancellor Angela Merkel has plenty to smile about, ahead of elections in September. Merkel was snubbed once again by US President Donald Trump at the G7 meeting in Italy, but she has struck up a warm relationship with new French president Emmanuel Macron. German political and business leaders are pleased to have the pro-Europe Macron at the helm of France, which is Germany’s second largest trading partner. Merkel’s affection for Macron is clearly mutual, as the latter raced off to Berlin to visit Merkel just days after winning the presidency. The Brexit vote and Donald Trump’s “America first” agenda present serious challenges to the EU, and Merkel and Macron will have no problem seeing eye-to-eye in their desire to deepen European integration.

The Federal Reserve remains on course for a June rate hike, which would be the second increase this year. The Fed minutes stated that the central bank plans to raise rates “soon”, and Federal funds futures continue to show a 78% likelihood of a June hike. However, policymakers find themselves in a dilemna with regard to monetary policy. The US economy has been sending conflicting signals with regard to inflation and employment. The labor market remains very strong, as the unemployment rate fell to 4.4 percent in April, its lowest level since 2007. However, the lack of slack on the employment front has not pushed up inflation levels to the Fed target of 2 percent. As for rate increases in the second half of 2017, the markets remain skeptical. The odds for a September rate stand at just 37%, with the markets unclear on whether the Fed will make further moves this year if inflation remains below the Fed target. Even if soft first quarter data was a blip, the markets (and possibly Fed policymakers) are concerned that President Trump, who is facing congressional investigations over his connections with the Russian government, may not be able to pass his agenda of cutting taxes and reigning in government spending. Gone are the heady days at the end of 2016, when a red-hot US economy had analysts predicting four rate hikes in 2017.

The US dollar struggles post Fed minutes

Where are the hawks?

Economic Calendar

Friday (May 26)

• Day 1 – G7 Meetings
• 8:30 US Preliminary GDP. Estimate 0.9%

*All release times are EDT

*Key events are in bold

DAX, Friday, May 26 at 8:10 EDT

Open: 12,696.00 High: 12,696.00 Low: 12,529.40 Close: 12,552.00

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