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DAX Edges Lower, German CPI Meets Expectations

The DAX index has posted slight losses in the Wednesday session. Currently, the DAX is at 13,155.00, down 0.22% on the day. On the release front, German Final CPI improved to 0.3%, matching the estimate. This marked a 4-month high. In the eurozone, Employment Change improved remained unchanged at 0.4%, matching the forecast. Industrial Production rebounded with a gain of 0.2%, above the forecast of 0.0%. In the US, The Federal Reserve meets for its monthly policy meeting, and is widely expected to raise rates to a range between 1.25% to 1.50%. Wednesday will be busy. On Wednesday, Germany and the eurozone release manufacturing PMIs, and the ECB will make a rate announcement.

Will the Federal Reserve press the rate trigger on Wednesday? The CME Group has priced in a quarter-point rate hike at 87%, so it would be a huge surprise if the Fed doesn’t raise the benchmark rate. Even though this move has been priced in, rate hikes tend to trigger a surge of confidence among investors, and a rate hike could boost global stock markets. Today’s move could be the start of a series of incremental hikes, as the odds of a January increase stand at 86%. The Fed has hinted that it could raise rates up to three times in 2018, but the pace of increases will depend to a great extent on the strength of the economy and inflation levels. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.

Germany and the eurozone continue to post strong numbers, and this has helped keep the DAX at high levels. However, investor optimism softened in December. The well-respected ZEW Economic Sentiment indicator, a confidence barometer of institutional investors, slowed in December. Economic conditions on the continent are good, but investors have to keep an eye on political developments as well, and there are some worrisome developments. Germany still remains without a government, and uncertainty over Brexit continues to hover over the European Union.

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