DAX Edges Higher Despite Dismal German Mfg. Report

The DAX Index continues to have an uneventful week. The index is up slightly in the Tuesday session, trading at 11,968.50. On the release front, German Factory Orders declined 7.4%, well below the estimate of a 2.5% decline. Eurozone Revised GDP remained unchanged at 0.4%, matching the forecast. On Wednesday, Germany releases Industrial Production.

German numbers were generally solid last week, but it’s been a different tune early this week. The markets were braced for a downturn from Factory Orders in February, but the decline of 7.4% was much sharper than expected. On Monday, retail sales, the primary gauge of consumer spending, declined 0.8%, compared to an estimate of 0.2%. This marked a fifth decline of six releases, as the German consumer continues to hold tight to her purse strings. The euro has held steady despite these weak readings, but if the negative trend continues from the Eurozone’s largest economy, investors could get edgy and drag the DAX to lower levels.

Germany’s Deutsche Bank was in the spotlight on Monday. 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 have lost ground this week, weighing on the DAX.

Donald Trump continues to create controversy on an almost basis, much to the consternation of the markets. Still, the dollar remains strong, buoyed by a strong economy and the increasing likelihood of a rate hike at the upcoming Fed policy meeting on March 15. The likelihood of a March hike has jumped to 84%, according to the CME group, compared to 33% just a week ago. Why the huge jump in odds? One reason is that Fed policymakers have sent out strong hints that the Fed is leaning towards raising rates next week. Earlier in the year, the Fed sent out signals Fed sent out signals that it would stay on the sidelines until it had a clearer picture of Trump’s economic agenda, such as an outline of tax reform or fiscal spending plans. That has changed, as the Fed appears poised to move ahead despite the lack of any details about the administration’s economic policy. This week’s job numbers will be critically important, as strong numbers will likely boost the odds of a March move as well as push the greenback to higher levels.

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Economic Calendar

Tuesday (March 7)

• 2:00 German Factory Orders. Estimate -2.5%. Actual -7.4%
• 2:45 French Government Budget Balance. Actual -5.4B
• 5:00 Eurozone Revised GDP. Estimate 0.4%. Actual 0.4%

Upcoming Key Events

Tuesday (March 7)

• 2:00 German Industrial Production

*All release times are EST

*Key events are in bold

DAX for Tuesday, March 7, 2017

DAX, March 6 at 7:10 EST

Open: 11,961.00 High: 11,990.50 Low: 11,941.50 Close: 11,968.50

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