DAX Surges to 10-Week High on US Tax Reform Hopes, Strong Eurozone CPI

The DAX index has posted sharp gains to start the week. Currently, the index is at 13,320.50, up 1.66% on the day. On the release front, Eurozone Final CPI improved to 1.5%, matching the forecast. On Tuesday, Germany releases Ifo Business Climate.

Investors are keeping a close eye on the Trump tax plan, which is winding its way through Congress. The Republicans appear on the verge of a major legislative victory, and this has boosted global stock markets on Monday. On Friday, the House of Representatives and the Senate reconciled their tax bills. The uniform bill now goes to both branches, where it is expected pass by a slim margin, as all Democrat lawmakers plan to vote against the bill. Crucially, two Republican senators who were opposed to the bill have now lent their support to the bill. The legislation is the first major overhaul of the US tax code in 30 years, and would represent a massive for President Trump, who has campaigned vigorously for the legislation and wants to sign it into law before Christmas.

The ECB is content to hold course and reiterated this stance on Thursday, when policymakers maintained interest rates at a flat 0.00%. ECB President Draghi sounded optimistic about economic conditions in the eurozone, noting that that ECB projections were “going in the right direction”. Draghi added a key caveat, stating 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 coax the cautious Draghi to signal another taper of the Bank’s ultra-loose stimulus program. Some policy makers favored signaling 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 till September 2018 (or later) and will keep interest rates at record lows even longer. One factor which could cause the ECB to reconsider and tighten policy is if inflation moves higher. In November, Eurozone Final CPI edged higher to 1.5%, up from 1.4% a month earlier.

Economic Calendar

Monday (December 18)

• 5:00 Eurozone Final CPI. Estimate 1.5%. Actual 1.5%
• 5:00 Eurozone Final Core CPI. Estimate 0.9%. Actual 0.9%
• 6:00 German Buba Monthly Report

Tuesday (December 19)

• 4:00 German Ifo Business Climate. Estimate 117.6

*All release times are GMT

*Key events are in bold

DAX, Monday, December 18 at 6:50 EDT

Open: 13,197.50 High: 13,327.00 Low: 13,196.00 Close: 13,320.50

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