DAX Unchanged Ahead of US Retail Sales, Inflation

The DAX index is almost unchanged in the Friday session. Currently, the DAX is at 12,637.00, down 0.07%. In economic news, the eurozone trade surplus edged up to EUR 19.7 billion, falling short of EUR 20.3 billion. The US will release CPI and retail sales, with both indicators expected to post a weak gain of 0.1%.

A robust German economy has spurred the eurozone’s recovery this year, but Germany is also grappling with persistently weak inflation levels. German Final CPI, a key gauge of consumer spending, improved to 0.2% in June, compared to -0.2% in May. Final CPI remains soft, managing  just one reading above 0.2% in 2017. Earlier in the week, the wholesale price index came in at a flat 0.0%, rebounding from a decline of 0.7% a month earlier. The ECB has set an inflation target of 2%, but German and eurozone inflation numbers remain well below that threshold. The ECB has acknowledged that economic conditions have improved, but insists that it has no plans to taper its ultra-loose monetary policy unless inflation levels move higher. The current asset-purchase plan is scheduled to wind up in December, and we’re unlikely to see any changes in monetary policy unless inflation moves considerably higher in the second half of the year.

The US economy has slowed in 2017, with GDP in the first quarter of 1.4%. Despite a labor market that remains close to capacity, consumer spending has not kept up. Wage growth remains weak, and inflation levels are well below the Fed’s target of 2 percent. Later on Friday, the markets will get a look at consumer spending and inflation indicators. The markets are expecting weak gains, which could disappoint investors and hurt the US dollar.

Janet Yellen testified twice on Capitol Hill this week, but her comments didn’t contain anything new, and the markets didn’t show much reaction to her cautious message. Yellen reiterated that the Fed planned to raise rates “gradually”, and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair didn’t provide any timelines, but the most likely timelines are September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen’s assurances, the markets remain lukewarm about a rate hike before the end of the year. Investors are concerned that the US economy has slowed down in 2017 and may not need another rate hike. In her testimony before a congressional committee, Yellen reiterated said that she believes the factors weighing on inflation are temporary. However, she acknowledged that with inflation well below the Fed’s target of 2%, “there could be more going on there”. Early in the year, the Fed all but signed on the dotted line that it would raise rates three times in 2017, but a third rate hike has become a serious question mark, with the odds of a December hike continuing to dip. According to the CME Group, the current odds for a December increase are just 43%.

Economic Calendar

Friday (July 14)

• 5:00 Eurozone Trade Balance. Estimate 20.3B. Actual 19.7B
• 8:30 US CPI. Estimate 0.1%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Core Retail Sales. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.1%

*All release times are EDT

*Key events are in bold

DAX, Friday, July 14 at 6:35 EDT

Open: 12,619.00 High: 12,654.50 Low: 12,619.00 Close: 12,634.00

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