DAX 30 Breaks Above 12,000 as German Business Climate Beats Expectations

The DAX Index has edged lower in the Wednesday session, but briefly broke above the symbolic 12,000 level. Currently, the index is trading at 11,989.79 points. On the release front, German Ifo Business Climate improved to 111.0, beating the estimate of 109.6 points. Eurozone Final CPI remained at 0.9%, matching the forecast. Over in the US, the Federal Reserve will publish the minutes of the January policy meeting.

German numbers continue to impress this week. German Ifo Business Climate improved to 111.0 in February, up from 109.8 a month earlier. Inflation is pointing upwards, as PPI climbed 0.7% in January, above the estimate of 0.3%. This marked a 3-month high. This was followed by strong Manufacturing PMI reports from Germany and the Eurozone, which continue to indicate expansion. On Thursday, Germany releases GDP and Consumer Climate.

Recent eurozone numbers have been steady, with the economy expanding and inflation levels moving upwards. Nonetheless, the ECB appears reluctant to make any changes to current monetary policy. The ECB released the minutes of its January policy meeting on Thursday. The minutes indicated that the central bank continues to have little appetite for reducing stimulus. Policymakers stated that the recent climb in inflation could prove to be temporary and there is political uncertainty ahead. France and Germany, the two largest economies in the eurozone, go to the polls later this year, as does the Netherlands. Inflation has moved close to the central bank’s target of around 2 percent, prompting calls from Germany and elsewhere to tighten monetary policy. At this point in time, a majority of ECB policy makers are in favor of maintaining course the asset-purchase program, which ends in December. However, if growth and  inflation numbers continue to climb, there will be increased pressure and louder voices calling for tighter monetary policy, which would be bearish for the stock market.

Germans go to the polls in September, as Chancellor Angela Merkel seeks a fourth term. However, she could be facing the toughest challenge yet in her lengthy political career. Merkel’s Christian Democrats are in for a dogfight, as underscored by a poll by the Emnid Institute showed the center’left Social Democrats (SPD) climbing to top spot for the first time since 2006. The SPD has steadily gained ground since it chose Martin Schultz to lead the party in late January. Schultz is well-respected and is a former President of the European Parliament. Merkel remains a popular leader, but has seen her support erode over her open-door policy on refugees, which led to hundreds of thousands of migrants coming to Germany.

The Federal Reserve will be on center stage on Wednesday. The central bank finally pressed the rate trigger in December, a full year after the previous rate hike. Last week, Fed Chair Janet Yellen strongly hinted that that another hike is on the way, leaving the markets to speculate on the timing of a hike – will it be in March or June? Even though the US economy is solid and we could see several rate hikes in 2017, market uneasiness over the Trump administration continues to grow, dampening investor appetite for risk. Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump is yet to outline a clear and coherent economic policy, although he has promised to unveil a tax package in the next few weeks. After Trump’s shock win in November, post-election euphoria boosted the markets. However, Trump’s first month in office has been marked by controversy and confusion, which has unsettled the markets.

Economic Calendar

Wednesday (February 22)

• 4:00 German Ifo Business Climate. Estimate 109.6. Actual 111.0
• 5:00 Eurozone Final CPI.  Estimate 1.8%. Actual 1.8%
• 5:00 Eurozone Final Core CPI. Estimate 0.9%. Actual 0.9%
• 5:30 Eurozone Long Term Refinancing Operation
• Tentative – German 30-y Bond Auction
• 14:00 US FOMC Minutes

Upcoming Releases

Thursday (February 23)

• 2:00 German Final GDP. Estimate 0.4%
• 2:00 GfK German Consumer Climate. Estimate 10.3

*All release times are EST

*Key events are in bold

DAX for Wednesday, February 22, 2017

DAX, February 22 at 6:20 EST

Open: 11,982.18 High: 12,031.10 Low: 11,979.70 Close: 11,989.79

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