HomeContributorsFundamental AnalysisDAX Posts Gains As ECB Drops Rate Guidance, Upgrades Growth Forecast

DAX Posts Gains As ECB Drops Rate Guidance, Upgrades Growth Forecast

The DAX index has posted modest gains in the Friday session. The index is up 0.49% and is currently at 12,770.50 points. On the release front, there is just one event on the schedule. Germany’s trade surplus improved to EUR 19.8 billion, but this fell short of the forecast of EUR 20.3 billion.

The ECB played it cautious at the June policy meeting. The central bank maintained the benchmark rate at 0.00%, and made no changes to its quantitative easing scheme (QE) of EUR 60 billion/month. However, there was an unexpected development, as the ECB removed its guidance on rate cuts, saying that rates could remain at current levels for an extended period. Effectively, the ECB has closed the door on lowering rates into negative territory, although the bank could change its stance if economic conditions in the euro-area deteriorate. On a brighter note, the ECB revised upwards its growth forecasts for the eurozone – from 1.8% to 1.9% in 2017, and from 1.7% to 1.8% in 2018. Analysts also noted a shift in language, as Draghi characterized risks to the economy as “broadly balanced”, compared to previous warnings that risks were “tilted to the downside”. However, low inflation levels remain a serious concern, and the ECB acknowledged this, lowering its inflation forecast. The ECB is now predicting inflation in 2017 at 1.5% in 2017 and 1.3% in 2018. Back in March, the forecast stood at 1.7% in 2017 and 1.6% in 2018. The ECB is not expected to revisit its monetary policy until the September meeting. Drahgi and his colleagues appear in no rush to tighten monetary policy, but at the same time, policymakers carefully chose less dovish language in the rate statement, in order to relieve pressure from Germany, which has been outspoken in demanding tighter monetary policy.

There was plenty of excitement in Washington on Thursday, as former FBI director James Comey testified before the Senate Intelligence Committee on Thursday, The TV ratings were high, but Comey did not deliver any bombshells while on the stand. Comey stated that he was not specifically asked by President Trump to close an investigation into Trump’s alleged ties with Moscow, so it is unlikely that his testimony will be the “smoking gun” that leads to charges of obstruction of justice against Trump. Still, Comey’s testimony raised troubling questions about Trump’s conduct, and will only complicate matters for the beleaguered Trump administration. Investors are growing more skeptical that Trump, who seems to be spending most of his time in damage control mode, will be able to deliver on key promises, and may come to view the president as a lame duck, just months into his presidency.

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