The DAX index has posted gains in the Monday session, gaining 0.56%. Currently, the DAX is at 12,397.58. On the release front, German Final Manufacturing PMI improved to 59.6, above the estimate of 59.3. As well, Eurozone Manufacturing PMI improved to 57.4, beating the forecast of 57.3. The Eurozone unemployment rate was unchanged at 9.3%, matching the forecast.
German consumer data beat expectations last week, reflecting a robust German economy. 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%.
Is the ECB planning to taper its stimulus program? The markets appeared to think so, based on the euro’s impressive rally last week, as EUR/USD jumped 2.0%. The currency was boosted by comments from ECB Governor Mario Draghi at the ECB forum in Portugal. Draghi restated the obvious when he gave an upbeat assessment of the eurozone economy, but the markets jumped on his comments about inflation. Draghi said that “deflationary forces have been replaced by reflationary ones” and added that the ECB’s stimulus program was needed for now, but would be gradually withdrawn once inflation moved higher. One could make the argument that Draghi was not saying anything new, but the markets seized on Draghi’s remarks as a declaration that the ECB was planning to tighten policy. After the euro jumped, the ECB tried to backtrack, with ECB sources saying that the markets had “misinterpreted” Draghi’s remarks. However, the markets shrugged this off, and if there are any indications that the ECB plans to tighten policy, the stock markets could respond with gains.
The US economy softened in the first quarter, but there was some positive news on Thursday, 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 first quarter, with the first estimate in April projecting a gain of only 0.7%. Inflation remains stubbornly low, and consumer spending is also soft, despite high consumer confidence levels. In May, Personal Spending softened to 0.1%, down from 0.4% a month earlier. If inflation levels don’t show some improvement, the Federal Reserve may have second thoughts about a December rate hike.
Monday (July 3)
- 3:55 German Final Manufacturing PMI. Estimate 59.3. Actual 59.6
- 4:00 Eurozone Final Manufacturing PMI. Estimate 57.3. Actual 57.4
- 5:00 Eurozone Unemployment Rate. Estimate 9.3%. Actual 9.3%
Tuesday (July 4)
- 5:00 Eurozone PPI. Estimate -0.2%
*All release times are EDT
*Key events are in bold
DAX, Monday, July 3 at 8:05 EDT
Open: 12,390.50 High: 12,419.50 Low: 12,387.50 Close: 12,397.58
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