DAX Under Pressure as US Tax Reform Hits Snag

It’s been a disappointing week for the DAX, as the index has declined 1.2 percent. The DAX continues to point down on Friday, as the index is at 13,031.25, down 0.28% on the day. On the release front, there is just one eurozone indicator. The eurozone trade surplus fell to EUR 19.0 billion, well off the estimate of EUR 24.4 billion. This marked a 3-month low.

There were no surprises from the ECB on Thursday, as policymakers held interest rates at a flat 0.00%. Investors were more interested in follow-up comments from ECB President Mario Draghi. In his press conference, Draghi sounded optimistic about economic conditions in the eurozone,  noting that that ECB projections were “going in the right direction”. Still, there was a caveat, as Draghi added that “an ample degree of monetary stimulus remains necessary”. The ECB raised its forecasts for growth and inflation, but this clearly wasn’t enough to convince the cautious Draghi to signal another taper of the Bank’s ultra-loose stimulus program. Some policy makers favored signalling a change in policy if inflation continues to move higher, but the majority favored staying the course, which means the ECB will continue buying bonds until September 2018 (or later) and will keep interest rates at record lows even lower.

German indicators sparkled on Thursday, although this wasn’t enough to stem the DAX losing ground. Manufacturing PMI hit a new record, climbing to 63.3 points. The PMI Composite Output Index, which measures business activity, improved to 58.7, its highest level since 2011. A robust German economy has been the locomotive for the eurozone, which has rebounded in 2017 with stronger growth and lower unemployment.

The Great Central Bank Yawn

Investors are keeping a close eye on developments on Capitol Hill, as the Trump tax reform bill winds its way through Congress. The House and Senate are currently working on a reconciliation bill, which would Trump hopes to sign before Christmas. With the Republicans losing a precious Senate seat in Alabama this week, their majority in the Senate has shriveled to just two seats (51-49), so every vote is crucial. Republican senator Mario Rubio has indicated that he might not vote for the tax bill unless child credits are raised, and this has stoked concerns on global markets that the bill might get stalled, which would be a disaster for Trump and could send stock markets sharply lower. The countdown in Washington continues, as a final bill could be unveiled on Friday, with a final vote next week.

Economic Calendar

Friday (December 15)

• 5:00 Eurozone Trade Balance. Estimate 24.4B

*All release times are GMT

*Key events are in bold

DAX, Friday, December 15 at 6:20 EDT

Open: 13,035.50 High: 13,050.50 Low: 13,007.00 Close: 13,031.25

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