The DAX index has ticked upwards in the Friday session, gaining 0.22%. Currently, the DAX is at 12,443.50. On the release front, German indicators were mixed. Retail Sales rebounded in May, with a gain of 0.5%. However, Unemployment Change gained 7 thousand, missing the estimate of -10 thousand. On the inflation front, Eurozone CPI Flash Estimate edged lower to 1.3%, above the forecast of 1.2%.
German consumer data beat expectations this week, as the German economy continues to shine. Preliminary CPI posted a gain of 0.2% in June, beating the estimate of 0.0%. This reading was an improvement from May, which showed a decline of 0.2%. On Friday, Retail Sales followed suit, as the gain of 0.5% was the strongest since March. However, Unemployment Change was unexpectedly soft, breaking a streak of 8 straight declines. The unemployment rate remained unchanged at 5.7%.
ECB President Mario Draghi may have got more than he bargained for as the highlight speaker at the ECB forum for central bankers in Sintra, Portugal. The meeting turned into the market-mover of the week (if not of the month), as the euro jumped 1.9%, while the pound soared 2.1%. The currencies posted the sharp gains after hawkish comments from Draghi and BoE Governor Mark Carney. Draghi was upbeat about the eurozone economy and put a positive spin on inflation, stating that “deflationary forces have been replaced by reflationary ones”. Draghi said that the ECB’s stimulus program was needed for now, but would be gradually withdrawn once inflation moved higher. The markets read Draghi’s comments as a declaration that the ECB was planning to tighten policy. After the euro jumped, the ECB tried to dampen the stampede to snap up euros, with ECB sources saying that the markets had “misjudged” Draghi’s remarks. This impeded the euro’s rally, but only briefly. There was a similar reaction from the pound, which jumped above the 1.30 level for the first time since May after Carney left the door open for a rate hike. Carney appeared to backtrack from remarks last week, when he warned against rate increases in the near future. This week’s rallies by the euro and the pound could mark trading opportunities, as Stephen Innes, senior trader at OANDA, summed up:
“A game changer of a week as hawkish central bank commentary steamrolled the markets”… traders are now contemplating who will be next to join the lineup. No one wants to miss out on this party realising there’s a co-ordinated policy shift afoot and the chance to catch the removal of an easing bias is far too seductive for traders to ignore.”
There was no getting around the fact that the US economy slowed down in the first quarter, but there was some good news, as the revised GDP reading was raised to 1.4%, better than the initial estimate of 1.2% in May. The improvement was attributed to stronger consumer spending and an increase in exports. Earlier in the year, the markets were braced for a very poor quarter, with the first estimate in April projecting a gain of only 0.7%. Will we see better numbers in the second quarter? That may be a tall order, as consumer spending and manufacturing numbers in Q2 have missed expectations. Housing numbers have been mixed, and inflation remains below the Fed’s target of 2 percent. At the same time, the US labor markets remains very tight, with the unemployment rate at a 16-year low of 4.3%. Stronger global economic conditions have increased the demand for US products, boosting the export sector.
Friday (June 30)
- 2:00 German Retail Sales. Estimate 0.3%. Actual 0.5%
- 3:55 German Unemployment Change. Estimate -10K. Actual +7K
- 5:00 Eurozone CPI Flash Estimate. Estimate 1.2%. Actual 1.3%
- 5:00 Eurozone Core CPI Flash Estimate. Estimate 1.0%. Actual 1.1%
*All release times are EDT
*Key events are in bold
DAX, Friday, June 30 at 6:15 EDT
Open: 12,418.50 High: 12,369.75 Low: 12,458.50 Close: 12,443.50