DAX Soars as Italy Resolves Political Crisis

The DAX has posted strong gains in the Friday session, after sliding on Thursday. Currently, the DAX is at 12,738, up 1.06% on the day. In economic news, Manufacturing PMIs in Germany and the eurozone were within expectations. In the U.S, the focus will be on job numbers, with the release of nonfarm payrolls and wage growth. Both indicators are expected to climb, with estimates of 189 thousand and 0.2%, respectively.

It’s been a roller-coaster road for the DAX this week. European stock markets were down sharply during the week, as a political crisis in Italy almost resulted in another election after an inconclusive vote in March. President  Sergio Matterella had vetoed the choice of the prime minister-elect for finance minister, stunning the political establishment and sending Italian stocks and bonds tumbling lower. In a dramatic breakthrough, the President has given his approval to a new choice for finance minister. This has paved the way for two euro-sceptic parties, the League North and Five Star Movement, to form a coalition government as soon as Friday.

German numbers showed some weakness in the first quarter, but there was positive news on Wednesday. Retail sales were unexpectedly strong in April, with a sharp gain of 2.3%. This reading ended a nasty streak of four declines. The gain is the strongest since December and raises hopes that second-quarter growth will rebound after a sluggish first quarter. Inflation is also expected to improve, with German Preliminary CPI forecast to rise to 0.3% in May after a flat reading of 0.0% in April. On the inflation front, Eurostat is projecting a surge this month, with CPI Flash Estimate rising to 1.9%, its highest level since April 2017. Core CPI Flash Estimate improved to 1.1%, marking an 8-month high. Still, inflation remains well below the ECB target of around 2 percent. Inflation levels are being closely watched by the ECB, which is scheduled to wind up its stimulus program in September. The ECB reduced its stimulus in January, from EUR 60 billion to 30 billion each month.

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EUR/USD Fundamentals

Friday (June 1)

• 3:55 German Manufacturing PMI. Estimate 56.8. Actual 56.9
• 4:00 Eurozone Final Manufacturing PMI. Estimate 55.5. Actual 55.5
• Day 2 – G7 Meetings
• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 189K

*All release times are DST

*Key events are in bold

DAX, Friday, June 1 at 7:30 DST

Open: 12,678 Low: 12,749 High: 12,660 Close: 12,731

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