The DAX has gained ground on Wednesday, after posting sharp gains on Tuesday. Currently, the index is at 12,021, up 0.44% on the day. In economic news, German and eurozone services PMIs beat expectations, with scores of 55.4 and 52.9, respectively. Eurozone retail sales dropped 0.4%, its first decline in four months. On Thursday, the ECB is expected to maintain its key interest rate at a flat 0.00%.
The DAX plunged in May, falling by 5.0%. However, the index has rebounded in June, with gains of 2.5% so far this month. The catalyst for the sharp rise this week has been comments from senior Federal Reserve officials supporting a rate cut. In recent months, the Fed has tried to present an aura of neutrality regarding rate moves, but has taken a sharp U-turn this week in favor of an easing bias. On Tuesday, Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. This comes on the heels of comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy.
There were no surprises from European PMIs readings in May. The services sector continue to shows expansion in both Germany and the eurozone. The German release slowed to 55.4, down from the reading of 55.7 in April. It was a different story for manufacturing, as manufacturing PMIs pointed to contraction in Germany and the eurozone. Both indicators have been mired in contraction territory for most of 2019. This is a result of ongoing trade tensions, which have reduced global demand for German and eurozone exports, and dampened the manufacturing sectors.
