DAX Jumps as German Ifo Business Climate Sparkles

The DAX index has posted considerable gains in the Monday session. Currently, the index is at 12,837.25 points, up 0.83%. On the release front, German Ifo Business Climate improved to 115.1, above the estimate of 114.6. Later in the day, ECB President Mario Draghi will speak at the ECB Forum on Central Banking in Portugal. In the US, today’s key event is Core Durable Goods Orders, which is expected to rebound and gain 0.4%. On Tuesday, Draghi will again address the ECB Forum event. 

The robust German economy has earned a thumbs-up from the business sector, according to a key survey released on Monday. Ifo Business Climate hit a record high in June, climbing to 115.1. The indicator has improved for five consecutive months, pointing to stronger optimism among German businesses. Ifo chief Clemens Fuest said that the German business sector was in a “jubilant” mood, and expected business conditions to continue to improve. Major economic institutes and the German central bank have revised upwards their forecast for German growth in 2017 and 2018. German GDP grew 0.6% in the first quarter, and has been the locomotive which has boosted growth in the eurozone. Analysts are closely monitoring how the ECB plans to respond to stronger economic conditions in the euro-area. So far, the central bank has dismissed calls to tighten monetary policy, saying that it will not make any moves until inflation moves closer to the ECB’s target of 2.0%. ECB President Mario Draghi will address the ECB Forum on Central Banking on Monday and Tuesday, and any hints about ECB monetary policy could move European stock markets.

European stock markets reacted positively to news that the Italian government would wind down two banks, Banca Popolare di Vicenza and Veneto Banca. This deal will cost the Italian taxpayer 5.2 billion euros, and the government provided additional guarantees of 12 billion euros. Italy has already agreed to bail out another Italian bank, Monte dei Pashci di Siena, for up to 6.6 billion euros. The Italian government has set aside 20 billion euros to bail out struggling banks, and potentially may have used up the entire amount for these bailouts, depending on how the actual size of the bailouts. These moves remove a major headache for European regulators and should strengthen the fragile Italian banking sector, which has been a sore spot in the eurozone banking sector. On the DAX, Commerzbank and Deutsche Bank have posted strong gains on Monday, posting gains of 2.35% and 1.24% respectively.

Economic Calendar

Monday (June 26)

• 4:00 German Ifo Business Climate. Estimate 114.7. Actual 115.1
• 6:00 German Buba Monthly Report
• 13:30 ECB President Mario Draghi Speaks

Tuesday (June 27)

• 4:00 ECB President Mario Draghi Speaks

*All release times are EDT

*Key events are in bold

DAX, Monday, June 26 at 8:30 EDT

Open: 12,774.00 High: 12,839.50 Low: 12,771.75 Close: 12,837.50

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