DAX slips as Italian budget irks European Union

The DAX index is down sharply in the Tuesday session. Currently, the index is at 12,242 points, down 0.78% on the day. In economic news, Eurozone PPI edged lower to 0.3%, above the estimate of 0.2%. In the U.S, there are no major releases on the schedule. On Wednesday, Germany and the Eurozone release Services PMI and the Eurozone will publish retail sales.

With Italy and the EU on a possible collision course over Italy’s budget, Italian stock markets were in the red last week and dragged down the German equity markets as well. The DAX slipped 1.1%, as risk appetite has decreased. Last week, the Italian government voted to increase spending and cuts taxes and set the budget deficit at 2.4% for 2019, 2020 and 2021. The European Commission must approve the budget, and EU policymakers are unhappy with the budget, as they have been pushing Rome to reduce the current deficit, which stands at 1.6% of GDP. EU Commissioner Pierre Moscovici said last week that the budget could breach EU fiscal regulations and called the Italian deficit “explosive”. However, the Italian government strongly backs the budget, so this crisis could continue and weigh on the DAX.

The week started off on a sour note, as German data pointed lower. German retail sales declined 0.1%, marking a second straight decline. This reading missed the estimate of a gain of 0.4%.  There was more disappointing news as Final Manufacturing PMI dipped to 53.7, its weakest level since July 2016. Germany is the largest economy in the eurozone, and German readings act as a bellwether for eurozone releases. The markets will be hoping for better

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Risk sentiment is shifting and headline-driven

Economic Calendar

Tuesday (October 2)

• 5:00 Eurozone PPI. Estimate 0.2%. Actual 0.3%
• All Day – ECOFIN Meetings

Wednesday (October 3)

• 3:55 German Final Services PMI. Estimate 56.5
• 4:00 Eurozone Final Services PMI. Estimate 54.7
• 5:00 Eurozone Retail Sales. Estimate 0.2%

*All release times are DST

*Key events are in bold

DAX, Tuesday, October 2 at 7:00 DST

Previous Close: 12,339 Open: 12,233 Low: 12,202 High: 12,300 Close: 12,245

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