DAX Edges Higher Ahead of ECB Stimulus Decision

The DAX has posted slight gains in the Thursday session, as the index remains close to the symbolic 13,000 level. Currently, the DAX is at 12,998.00, up 0.26%. On the release front, German GfK Consumer Climate edged lower to 10.7, close to the forecast of 10.8 points. The ECB will release its rate statement, and is expected to taper its asset purchase program. On Friday, Germany will publish Import Prices, while the US releases Advance GDP.

The ECB holds a crucial policy meeting on Thursday. The Bank is expected to maintain interest rates at a flat 0.00%, but could significantly trim the ECB’s asset purchase program (QE). Currently, the ECB is purchasing EUR 60 billion/mth, and there is a strong likelihood that this amount will drop to EUR 30 billion/mth. The stronger eurozone economy is the catalyst behind a taper, but with inflation persistently at low levels, the ECB is expected to announce to extend the program well into 2018 or even later. Eurozone members remain divided as to whether the ECB should signal that it plans to wind up QE. Germany and the Netherlands are in favor of a quick exit, but other members want the scheme to remain open-ended, so that the ECB can continue with extensions, if needed. ECB policymakers will need to perform a balancing act between these views as it shifts its monetary policy.

German Ifo Business Climate jumped to 116.7, an all-time high. The business sector is very optimistic about the robust economy, and appears unfazed by German coalition talks and the deadlock in the Brexit talks. The strong reading suggests that the German economy will enjoy a strong fourth quarter. German policymakers insist that the ECB’s interest rate policy is too loose for Germany, but the economy is still expected to thrive. Earlier in the week, German Manufacturing PMI posted a strong reading of 60.5 points, beating expectations. The manufacturing sector continues to expand, buoyed by strong domestic demand and the global appetite for German exports.

Economic Calendar

Thursday (October 26)

• 2:00 German GfK Consumer Climate. Estimate 10.8. Actual 10.7
• 4:00 Eurozone M3 Money Supply. Estimate 5.0%. Actual 5.1%
• 4:00 Eurozone Private Loans. Estimate 2.8%. Actual 2.7%
• 7:45 ECB Minimum Bid Rate. Estimate 0.00%
• 8:30 ECB Press Conference

Friday (October 27)

• 2:00 German Import Prices. Estimate 0.5%
• 8:30 US Advance GDP. Estimate 2.5%

*All release times are GMT

*Key events are in bold

DAX, Thursday, October 26 at 6:40 EDT

Open: 12,956.50 High: 12,995.50 Low: 12,941.50 Close: 12,998.00

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