DAX Slides as US Tax Reform Vote Delayed

The DAX index is down sharply in the Friday session. Currently, the DAX is at 12,859.75, down 1.26% on the day. On the release front, the focus is on manufacturing data. Eurozone Final Manufacturing PMI improved to 60.1, above the estimate of 60.0. German Final Manufacturing PMI climbed to 62.5, matching the forecast. Still, the strong readings failed to stem sharp losses on Friday, as investors remained concerned about a delay in the vote over the US tax reform bill.

The week ended on a positive note for eurozone and German indicators, as manufacturing PMIs improved in October. Eurozone Final Manufacturing PMI climbed to 60.1, and the German indicator improved to 62.5 points. The German reading marked the highest since February 2011, while the eurozone release was the strongest since April 2000. The sparkling numbers underscore stronger global demand for European products, which have boosted the manufacturing and export sectors.

German retail sales continue to struggle, as the key indicator posted a sharp decline of 1.2% in October. This marked the third decline in four months. Germany’s economy is solid and the labor market is strong, so why isn’t the German consumer spending? Strong economic conditions have not translated into higher wages for a large segment of the labor force, and low unemployment numbers have masked the problem of underemployment, ,which of course means lower wages for workers who can’t find full-time work. The lack of inflation in Germany is apparent in the eurozone as well, as inflation levels remain below the ECB’s inflation target of around 2 percent.

All eyes are on Washington, as the Senate is set to vote on its version of tax reform. A vote was expected on Thursday night, but this has been delayed until Friday. Republican lawmakers are confident that they have the necessary votes to pass the bill, but with the vote expected along party lines, the results will be close. Investors are closely following the proceedings, and the delay in the vote has sent global stock markets lower on Friday. If the Senate does pass the bill, the stock markets and US dollar will likely respond with gains. The next step in the tax reform saga would be for the House and Senate to bridge the differences between the two bills and come up with a single version, with the goal to present a new tax bill for President Trump’s signature before Christmas.

Economic Calendar

Friday (December 1)

  • 3:55 German Final Manufacturing PMI. Estimate 62.5. Actual 62.5
  • 4:00 Eurozone Final Manufacturing PMI. Estimate 60.0. Actual 60.1

*All release times are GMT

*Key events are in bold

DAX, Friday, December 1 at 6:00 EDT

Open: 13,047.75 High: 13,065.50 Low: 12,812.00 Close: 12,859.75

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.