DAX Unchanged, US and China Markets Closed

The DAX index is flat at the start of the week. Currently, the DAX is trading at 12,601.25 points. On the release front, there are no major eurozone events. The markets are focused on the ECB, as ECB President Mario Draghi testifies before the Economic and Monetary Affairs Committee in Brussels. US markets are closed for Memorial Day, and with China and the UK also closed, we’re unlikely to see much movement from the DAX. On Tuesday, Germany releases Preliminary CPI, and an unexpected reading could shake up the listless DAX index.

Germany’s economy continues to perform well, with low unemployment and GDP for 2017 expected at 1.6%. The German locomotive has boosted the eurozone economy, which enjoyed solid growth in the first quarter. There were plenty of concerns about the eurozone at the start of the year, with the election of Donald Trump in the US, who ran on a protectionist campaign of “America first”. As well, the Brexit vote hung over Europe like a dark cloud, with fears that Britain’s departure spelled the end of a united Europe. Although Trump and Brexit still remain serious challenges for the EU, fears of a populist wave across the continent have receded, as nationalist parties in the Netherlands and France were handily defeated in recent elections. Economic indicators continue to point upwards, as unemployment has dropped and growth is higher. The EU Spring Forecast has forecast Eurozone GDP to rise 1.7% in 2017, and 1.8% in 2018, and  European stock markets have posted strong gains in the first quarter, and the DAX has soared 10.3% since the start of the year and continues to record new highs.

With expectations high that the Fed will raise interest rates at the June meeting, all eyes were on the revised GDP report, which was released on Friday. The US economy expanded at an annual rate of 1.2%, according to second estimate for GDP. This was considerably higher than the 0.7% gain which was reported in the first estimate in April. Still, this figure is the lowest in a year, and well off the 2.1% gain in Q4. Business spending remains weak, and although consumer confidence remains at high levels, consumer spending has not kept up, as retail sales was softer than expected in April. The manufacturing sector has hit some turbulence, with Core Durable Goods Orders posting a decline of 0.4% in April, its third decline in four months. After a shaky first quarter for the US economy, there are no indications as of yet that we will see a rebound in the second quarter. As for a June hike, the odds of a rate hike have increased to 84%. At the same time, the likelihood of a rate hike in the second half of 2017 remain low. The odds for a September rate are just 26%, with the markets unclear on whether the Fed will make further moves this year if inflation remains below the Fed target. Even if soft first quarter data was a blip, the markets (and possibly Fed policymakers) are concerned that President Trump, who is facing several congressional investigations over his connections with the Russian government, may not be able to pass his agenda of cutting taxes and reigning in government spending.

Q1 US GDP Revised Up to 1.2%

Economic Calendar

Monday (May 29)

• 4:00 Eurozone M3 Money Supply. Estimate 5.2%. Actual 4.9%
• 4:00 Eurozone Private Loans. Estimate 2.5%. Actual 2.4%
• 9:00 ECB President Draghi Speaks

Tuesday (May 30)

• 2:00 German Import Prices. Estimate 0.2%
• All Day – German Preliminary CPI. Estimate -0.1%

*All release times are EDT

*Key events are in bold

DAX, Monday, May 29 at 7:20 EDT

Open: 12,595.50 High: 12,577.50 Low: 12,614.75 Close: 12,601.25

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