DAX Rebounds, Shrugs Off Soft Economic Sentiment Reports

The DAX index has posted gains in the Tuesday session, after losses of 1.0% in the Monday session. Currently, the DAX is trading at 12,270, up 0.44% on the day. On the release front, Germany PPI surprised the markets with a decline of 0.1%, shy of the estimate of +0.1%. This marked the first decline since May. German ZEW Economic Sentiment plunged to 5.1 points, down from 17.8 a month lower. This reading was well off the forecast of 13.1 points and marked the lowest reading since September 2016. Eurozone ZEW Economic Sentiment followed the same trend, dropping to 13.4, compared to a forecast of 28.1 points. The markets will be keeping a close eye on the Federal Reserve, which will set the benchmark rate and release a rate statement.

It was a rough start to the week for European stock markets, and the DAX suffered sharp losses of 1.0% on Monday. European technology stocks were sharply lower on the news that Micro Focus, one of Britain’s largest tech firms, saw its shares plunge by 55 percent after it lowered its revenue forecast and its CEO resigned. However, the DAX has rebounded on Tuesday, posting modest gains.

There have been plenty of setbacks in the Brexit negotiations, but there was some good news on Monday, as the two sides announced that there would be a transition period following the UK’s departure from the EU in March 2019. The transition deal will kick in at that time, lasting until December 2020. The deal covers the rights and status of EU citizens in the UK and British citizens in the EU, and allows the UK to pursue new trade agreements during that time. There are still issues to iron out, such as the Northern Ireland border. The transition period is a major, positive development, in that it will enable Britain to enjoy the benefits of the common market, although Britain will be out of the EU and won’t have any voting rights in the club.

The Federal Reserve is poised to raise interest rates on Wednesday, which would mark the first hike of 2018. According to the CME Group, the odds of a quarter-point raise stand at 94 percent. What can we expect from the Fed during the year? The current Fed projection remains at three hikes, but a robust US economy has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially upcoming inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.

Sterling Strong Despite Weaker Inflation

Economic Calendar

Tuesday (March 20)

• 3:00 German PPI. Estimate +0.1%. Actual -0.1%
• 6:00 German ZEW Economic Sentiment. Estimate 13.1. Actual 5.1
• 6:00 Eurozone ZEW Economic Sentiment. Estimate 28.1. Actual 13.4
• 11:00 Eurozone Consumer Confidence. Estimate 0

Wednesday (March 21)

• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.75%

*All release times are EST

*Key events are in bold

DAX, Tuesday, March 20 at 7:30 EDT

Prev. Close: 12,217 Open: 12,248 High: 12,272 Low: 12,188 Close: 12,270

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