DAX Drops to 17-Week Low, Eurozone Retail Sales Slide

The DAX remains under pressure, and has started the week with strong losses. In the Monday session, the index is trading at 12,659.00 down 0.98% since the Friday close. On the release front, Eurozone and German Services PMIs improved in January. Both readings beat their estimates. Eurozone retail sales declined 1.1%, matching the forecast. Later in the day, ECB President Mario Draghi testifies on the ECB’s Annual Report for 2016 before the European Parliament. On Tuesday, Germany releases Factory Orders.

It was a dismal week for the DAX, which slipped 4.3% last week. On Friday, Deutsche Bank shares dropped more than 5%, sending European stock markets into red territory, and the DAX is at its lowest level since September 26. The picture for Deutsche Bank is not a pretty one, as the stock price is at its lowest level since November, and the bank posted its third straight annual loss in 2017. A decline in investment bank revenue and the US tax reform bill contributed to a weak fourth quarter for Deutsche Bank shares.

With the eurozone economy continuing to perform well, there has been speculation that the ECB could wind up its asset-purchase program (QE) in September and shift to a normative policy, and perhaps raise interest rates. However, Mario Draghi and other ECB members have taken pains to reiterate that the Bank is in no rush to end QE. Last week, executive board member Benoit Coeure joined the chorus, saying that although QE “will not last forever” policymakers were in agreement “that we have to be patient and prudent because we are not yet where we want to be in terms of inflation”. Investors would be well advised to keep a close eye on eurozone and German inflation numbers, as asset purchases could be extended beyond September if inflation remains well below the ECB target of around 2.0%.

Economic Calendar

Monday (February 5)

• 3:55 German Services PMI. Estimate 57.0. Actual 57.3
• 4:00 Eurozone Final Services PMI. Estimate 57.6. Actual 58.0
• 4:30 Eurozone Sentix Investor Confidence. Estimate 33.2. Actual 31.9
• 5:00 Eurozone Retail Sales. Estimate -1.1%. Actual -1.1%
• 9:45 Eurozone Final Services. Estimate 53.3
• 11:00 ECB President Mario Draghi Speaks

Tuesday (February 6)

• 2:00 German Factory Orders. Estimate 0.6%
• 4:00 German Buba President Weidmann Speaks

*All release times are GMT

*Key events are in bold

DAX, Monday, February 5 at 7:15 EDT

Open: 12,665.04 High: 12,751.83 Low: 12,621.85 Close: 12,659.00

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