DAX Under Pressure After Dismal Week

The DAX continues to head lower in the Monday session. Currently, the DAX is at 13,018.50, down 0.81% on the day. On the release front, there are no German or eurozone events on the schedule. Germany and the eurozone release GDP reports, and Germany will publish ZEW Economic Sentiment. As well, Mario Draghi and Janet Yellen will participate in a panel at an event organized by the ECB.

It was a rough week for the DAX, as the index declined 2.5 percent. Negative corporate earnings from major European companies weighed on German stock markets throughout the week, and the DAX continues to lose ground on Monday. Still, the index continues to trade at high levels, and could rebound if US President Trump’s tax proposal gets through Congress. Trump wants the tax bill on his desk before the end of the year, but that will be a tall order, as some Republicans lawmakers are not happy with the proposal and could vote against it.

ECB policymakers have been reluctant to alter their stimulus program (QE), but they finally pressed the trigger in October, with a “less but longer” setup. Starting in January, the ECB will cut its monthly asset purchases from EUR 60 billion to 30 billion. However, QE is being extended until September 2018, as the Bank is weaning the eurozone off stimulus. With the eurozone economy exceeding expectations in 2017, some policymakers have expressed reservations about the gradual pace of trimming stimulus, arguing that the Bank should cut the asset purchases at a faster rate. Governing Council member Philip Lane, head of the Irish central bank, said last week that if inflation moves closer to 2 percent, the ECB should tighten at a faster pace. The heads of the German and Austrian central banks, who are also on the Governing Council, went even further, saying that the ECB should have indicated a clear intent to end asset purchases, rather than announce an extension. If eurozone indicators continue to point upwards, ECB President Mario Draghi will be under pressure to terminate QE before September, or lower the size of the asset purchases.

It’s report card time on Tuesday, as Germany and the eurozone release GDP reports for the third quarter. Both releases are forecast to show respectable gain of 0.6% percent. The German economy has looked sharp in 2017, buoyed by solid consumer demand and a strong global appetite for German products. Germany has been the locomotive for the euorozone, and boosted traditional laggards such as France and Spain. Geopolitical concerns such as Catalonia and Brexit have the potential to crash the party, but in the meantime, eurozone indicators have generally been pointing upwards.

Economic Calendar

Monday (November 13)

• 2:00 German WPI. Estimate 0.4%. Actual 0.0%

Tuesday (November 14)

• 2:00 German Preliminary GDP. Estimate 0.6%
• 5:00 ECB President Mario Draghi Speaks
• 5:00 Eurozone Flash GDP. Estimate 0.6%
• 5:00 German ZEW Economic Sentiment. Estimate 19.8
• 5:00 Eurozone Industrial Production. Estimate -0.6%
• 5:00 Eurozone ZEW Economic Sentiment. Estimate 29.3

*All release times are GMT

*Key events are in bold

DAX, Monday, November 13 at 8:10 EDT

Open: 13,145.50 High: 13,163.50 Low: 13,982.50 Close: 13,018.50

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