DAX Yawns as Eurozone CPI Beats Estimate, US GDP Next

After starting the week with strong gains, the DAX has shown little movement. The index is trading at 12,446.25 in the Friday session. In the eurozone, German Retail Sales dropped to 0.1%, matching the estimate. There was positive news on the inflation front, as Eurozone CPI Flash Estimate improved to 1.9%, above the estimate of 1.8%. The US will release Advance GDP, with a forecast of 1.3%.

Inflation in the eurozone remains at strong levels, and is forecast to rise to 1.9% in April, up from 1.5% in March. Although inflation levels have moved higher, Mario Draghi stated on Thursday that the ECB was not changing its inflation forecast or making any changes to its asset-purchase program. The ECB held rates at a flat 0.00%, and the rate statement and comments from Mario Draghi were more dovish than the markets would have liked. The current ultra-loose policy, which includes a quantitative easing program of EUR 60 billion/mth, has been in place since 2008. Draghi acknowledged more favorable economic conditions, noting the eurozone economy had improved and downside risks had decreased. There had been speculation that the ECB might taper or bring forward its asset-purchase program, which runs until December. The ECB holds its next meeting in June, and the markets will again be looking for some tightening from the ECB.

The French presidential election may be in the daily headlines, but European stock markets haven’t shown much response this week. Voters will be back at the ballot boxes next Sunday, and the markets have priced in a victory by Emmanuel Macron over Marie Le Pen. A major reason for the market’s calmness is that opinion polls before the first round were fairly accurate, and correctly forecast that Macron would win 24% of the vote and Le Pen 22%, with both advancing to the May 7 runoff. The markets are thus relying on the polls for the second round, which show Macron with a comfortable lead of 60-40. Le Pen is a heavy underdog, compounded by the fact that some candidates from the first round, as well as former President Francois Hollande, have publicly called for voters to support Macron. Still, a strong showing by Le Pen next Sunday would show that her strident anti-EU stance has wide popularity, and this could sour investor sentiment and send the euro downwards.

ECB Leaves Rates, Guidance Unchanged

President Trump announced his long-awaited tax plan on Wednesday. The proposal calls for sharp reductions for both individuals and corporations. The plans calls three tax brackets for individuals – 10%, 25% and 35%. The corporate sector would also see significant tax relief, with the corporate tax rate dropping from 35% to 15%, and the tax on multinationals’ overseas profits lowered from 35% to 10%. However, any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump’s proposal should be viewed as a blueprint that is a long way off from becoming law. Trump’s proposal was short on details, although government officials are praising it as one of the largest tax cuts and broadest overhauls of the tax system in history.

Mnuchin and Cohn Present Trump Tax Proposal

Economic Calendar

Friday (April 28)

• 2:00 German Retail Sales. Estimate 0.1% Actual 0.1%
• 2:00 German Import Prices. Estimate 0.3%. Actual -0.5%
• 4:00 Eurozone M3 Money Supply. Estimate 4.7%. Actual 5.3%
• 4:00 Eurozone Private Loans. Estimate 2.4%. Actual 2.4%
• 5:00 Eurozone CPI Flash Estimate. Estimate 1.8%. Actual 1.9%
• 5:00 Eurozone Core CPI Flash Estimate. Estimate 1.0%. Actual 1.2%
• 8:30 US Advance GDP. Estimate 1.3%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.1

DAX, Friday, April 28 at 6:40 EST

Open: 12,411.75 High: 12,457.50 Low: 12,407.75 Close: 12,446.25

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