HomeContributorsFundamental AnalysisRobust DAX Pauses For German Holiday, Eurozone PPI Improves

Robust DAX Pauses For German Holiday, Eurozone PPI Improves

The DAX is closed in the Tuesday session, as Germany celebrates Unity Day. The DAX started the week with gains, and closed the Monday session at 12,902.65, up 0.58% on the day. On the release front, the sole eurozone event, Producer Price Index, gained 0.3%, above the forecast of 0.1%. This marked the indicator’s strongest gain since January. On Wednesday, the eurozone and Germany releases Final Services PMI, and ECB President Mario Draghi will speak at an event in Frankfurt.

The DAX continues its upward run, as the index has now posted winning sessions for six straight days, and is currently at its highest level since June 20th. US stock markets closed the Monday session with record highs, and the positive momentum has extended to European markets. There was good news on the inflation front, as Eurozone PPI beat expectations with a gain of 0.3 percent. Is eurozone inflation on its way up? If upcoming inflation indicators follow suit and point upwards, the ECB will have to revisit tightening its ultra-loose monetary policy. With the eurozone showing sustained growth in 2017, the cautious ECB will be reluctant to tighten policy, unless inflation moves higher. However, the ECB will have to make some important decisions, as the bank’s current asset-purchase program is scheduled to terminate in December.

Catalonia, one of the richest regions in Spain, was a scene of chaos and violence over the weekend. The Catalan regional government attempted to hold a referendum on independence, but the national government was adamantly opposed to the move and banned the vote. When voters showed up at polling stations, the police moved in with force, injuring close to 900 civilians. Catalonian officials claimed that 90 percent of voters had voted for independence, setting the stage for a full-blown crisis with Madrid. The Spanish constitution prohibits any region from seceding, but Catalan Carles Puigdemont has not showed any intent to back down, and has called for a general strike on Tuesday. Although the euro lost ground on Monday, the crisis is not expected to continue to weigh on the currency, given that the referendum is viewed as an issue local to Spain, and not to the eurozone in general. As well, the Spanish economy is in good shape, so a constitutional crisis is unlikely to affect the country’s economic growth.

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