The DAX has posted gains in the Thursday session, climbing above the symbolic 12,000 level. Currently, the DAX is trading at 12,015.50. On the release front, there are no major events in the eurozone. German PPI dipped to 0.0%, short of the estimate of 0.2%. On Friday, Germany and the Eurozone release services and manufacturing PMIs, which are expected to indicate expansion.
Market focus is fixed on the French presidential election, with the first round of voting slated for April 23. This election is one of the tightest in decades, with the four front-runners clustered within a few percentage points. Given the closeness and unpredictability of the election, it’s no surprise that final opinion polls before the vote are moving markets. A Harris Interactive opinion poll published on Thursday showed centrist Emmanuel Macron gaining ground, with 25% of the vote. Far-right candidate Marine Le Pen follows with 22%. Next are Republican candidate Francois Fillon and left-wing candidate Jean-Luc Melenchon, both tied at 19%. Le Pen and Melenchon want to hold a referendum on French membership in the EU, so the markets are clearly more comfortable with Macron and Fillion, and this latest poll has boosted the stock markets. We can expect more volatility as we near Election Day, and French banks will be staffed throughout Sunday night in order to respond quickly to developments in the currency markets after the election results.
Eurozone consumer inflation has been gaining strength in recent months, but softened in March. Final CPI slipped to 1.5%, compared to 2.0% a month earlier. The index climbed to 2.0% in February, which is the ECB’s inflation target. This had led to speculation that the ECB might have to consider tightening its monetary policy, either by lowering interest rates or tapering its asset-purchase program (QE). The ECB’s asset-purchase program is scheduled to remain in place until December, although the central bank could opt to bring up that date or taper the program if growth and inflation numbers in the Eurozone are unexpectedly strong. There are also political considerations at play, as the ECB is reluctant to make any significant monetary moves with upcoming elections in France and Germany.
The Federal Reserve has sent out broad hints that it plans to raise rates gradually in 2017, but the timing and number of moves in store remains uncertain. The Fed has broadly hinted that it plans two more rate hikes this year, but there have been calls from some Fed policymakers for three more hikes. However, soft retail sales and CPI numbers in March are likely to make the Fed more dovish, and on Tuesday, the Atlanta and New York Federal Reserve lowered their outlook for US economic growth for the first quarter. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but surprisingly, this has not translated into stronger consumer spending, a key driver of economic growth. The odds of a June hike have slipped to 46% according to the CME Group, down sharply from 65% in early April.
Thursday (April 20)
- 2:00 German PPI. Estimate 0.2%. Actual 0.0%
- Tentative – Spanish 10-y Bond Auction
- 10:00 Eurozone Consumer Confidence. Estimate -5
Friday (April 21)
- 3:30 German Flash Manufacturing PMI. Estimate 58.1
- 3:30 German Flash Services PMI. Estimate 55.5
- 4:00 Eurozone Flash Manufacturing PMI. Estimate 56.1
- 4:00 Eurozone Flash Services PMI. Estimate 56.0
*All release times are EST
*Key events are in bold
DAX, Thursday, April 20 at 6:45 EST
Open: 11,975.00 High: 12,052.25 Low: 11,945.75 Close: 12,015.50