DAX punches past 12,000 as ECB announces stimulus

The DAX has resumed its upward movement on Friday, which marked the early part of the week. Currently, the index is at 12,035, up 0.69% on the day. In economic news, German numbers were a disappointment. Industrial production declined 1.9%, much weaker than the estimate of -0.4%. Germany’s trade surplus narrowed to EUR 17.0 billion in April, below the estimate of EUR 18.7 billion. This marked the lowest surplus since July 2018. In the U.S., investors await the release of nonfarm payrolls, with the markets braced for a soft reading of 177 thousand.

ECB policymakers sent a dovish message to the markets after their policy meeting, and equity investors responded with a thumbs-up. The ECB surprised the markets by revising its forward guidance, saying that it would not raise interest rates prior to the middle of 2020. Previously, the bank had said that it would not hike rates prior to the spring of 2020. The delay is a response to weak economic conditions in the eurozone, as the global trade war has taken a toll on manufacturing and exports in Germany and the rest of the bloc.

As expected, ECB President Draghi said that ECB will pay banks to borrow funds from the central bank, if the funds are passed on to consumers and small businesses. This is a stimulus measure with the aim of boosting spending in the private sector. The bank upwardly revised its 2019 outlooks for growth and inflation. In March, the ECB forecast GDP at 1.1% and inflation at 1.2% – these were revised to 1.2% and 1.3%, respectively.

Traders will be keeping a close eye on U.S. nonfarm payrolls for May. Earlier this week, ADP nonfarm payrolls plunged to a paltry 27 thousand for May, down from 275 thousand a month earlier. Will the official release follow suit? The markets are expecting NFP to fall to 177 thousand, compared to 263 thousand a month earlier. If the estimates are on target and NFP sags, risk appetite could drop as well and the DAX could lose ground.

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Economic Calendar

Friday (June 7)

• 2:00 German Industrial Production. Estimate -0.4%. Actual -1.9%
• 2:00 German Trade Balance. Estimate 18.7B. Actual 17.0B
• 8:30 US Nonfarm Employment Change. Estimate 177K

*All release times are DST

*Key events are in bold

DAX, Friday, June 7 at 7:30 DST

Previous Close: 11,953 Open: 12,002 Low: 11,998 High: 12,059 Close: 12,035

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