DAX Jumps Ahead of Expected Fed Rate Hike

The DAX index has posted strong gains in the Wednesday session, and has climbed 1.1 percent. The index is currently at 12,904.75 points. On the release front, German Final CPI declined 0.2%, well off the forecast of a 0.5% gain. Employment Change climbed 0.4%, edging above the estimate of 0.3%. Eurozone Industrial Production climbed 0.5%, matching the estimate. There are a number of key events in the US, highlighted by the Federal Reserve rate announcement. As well, the US will release retail sales and CPI reports.

The markets are awaiting the Federal Reserve rate announcement later on Wednesday. The markets have priced in a rate hike at close to 100%, so it’s a given that the Fed will increase rates by 25 basis points, to 1.25%. What is less clear, however, is what the Fed has planned in the second half of 2017. Analysts are expecting a “dovish hike”, meaning that together with the rate increase, the Fed rate statement will be cautious in tone, and dovish regarding additional rate hikes. Earlier in the year, three rate hikes in 2017 seemed almost a given, but currently, the odds of a September move are just 28%. There are two items which could affect the movement of the dollar. First, the Fed Economic Projections will detail forecasts of inflation, growth and unemployment, and most importantly, the rate hike path. With the US economy performing better in the second quarter, there’s a strong likelihood that the Fed will not moderate its rate hike projections,which is good news for the dollar. Secondly, the markets will be looking for details regarding its plan to lower the $4.2 trillion balance sheet. If the Fed outlines a plan to reduce its holding in H2, the dollar could respond positively. Another variable is the political paralysis which has engulfed Washington. With the  Trump administration spending most of its energy on damage control, little progress is being made with regard to Trump’s agenda of tax reform and major spending on infrastructure. The markets are becoming more skeptical about Trump’s ability to work with Congress, and if this sentiment is shared by the Fed, it is likely to sound dovish regarding rate hikes in September or December.

Dollar to be Dot Plot Driven

Economic Calendar

Wednesday (June 14)

• 2:00 German Final CPI. Estimate +0.5%. Actual -0.2%
• 5:00 German Employment Change. Estimate 0.3%. Actual 0.4%
• 5:00 Eurozone Industrial Production. Estimate 0.5%. Actual 0.5%
• 5:35 German 10-y Bond Auction. Actual 0.26%
• 8:30 US CPI. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.1%
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.25%
• 14:30 US FOMC Press Conference

*All release times are EDT

*Key events are in bold

DAX, Wednesday, June 14 at 7:00 EDT

Open: 12,795.50 High: 12,904.00 Low: 12,792.75 Close: 12,892.50

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