HomeContributorsFundamental AnalysisDAX Ticks Upwards as German Services PMI Beats Estimate

DAX Ticks Upwards as German Services PMI Beats Estimate

The DAX index has inched higher in the Wednesday session, as the index is up 0.16%. Currently, the DAX is at 12,455.75. On the release front, German and Eurozone Services PMIs in June both beat their estimates, although they were weaker than the May reports. Eurozone Retail Sales climbed to 0.4%, matching the forecast. In the US, the Federal Reserve will release the minutes of the June policy meeting. On Thursday, the ECB will release the minutes of its most recent meeting.

There was positive news from the services sectors, as German and Eurozone Final Services PMIs continue to indicate expansion. German Final Services came in at 54.0, above the forecast of 53.7. Eurozone Final Services PMI came in at 55.4, easily beating the forecast of 54.7. However, both indicators weakened in June, which could be a source of concern for the markets. The German manufacturing sector is in good shape, boosted by a stronger demand for German exports. On Monday, German Manufacturing PMI came in at 59.6, pointing to expansion. We’ll get a look at additional manufacturing data later in the week, with the release of Factory Orders on Thursday and Industrial Production on Friday.

The recent ECB forum of central bankers triggered a stampede to snap up euros, as the currency jumped 2.0%, following hawkish remarks from ECB President Mario Draghi. At the meeting, Draghi sounded upbeat about the euro-area economy and played down concerns about low inflation levels. Draghi did not appear to veer away from current ECB policy, but he may have learned the hard way that the markets picked up a different message than the one he delivered in his speech. The euro rally has forced ECB policymakers to reassess whether what moves, if any, it will announce at the July 20 policy meeting. In June, the ECB removed an easing bias regarding interest rates, effectively closing the door to further rate cuts. However, policymakers may now be wary about removing a second easing bias regarding the asset-purchase program, to avoid another run on the euro. The ECB has repeated loud and clear that it will not remove QE until inflation levels are closer to the bank’s target of 2.0%, but the markets chose to interpret Draghi’s comments as a signal that the bank was planning an exit from its easing stance. This could result in the ECB playing it safe and avoiding any meaningful discussion about QE at the July meeting, especially if the euro remains at high levels. European stock markets have made the most of the ECB’s ultra-loose policy, as investors have taken advantage of "easy money" and pushed stock markets to higher levels. If the markets remain convinced that the ECB is planning to exit its stimulus program, stock markets could lose ground.

Federal Reserve policymakers have consistently said that they expect a third rate hike in 2017, but the markets are not convinced. The odds of a December rate hike are pegged at 50%, while the likelihood of an increase in September is just 18%. Consumer spending, which comprises two-thirds of US economic growth, remains soft. Another sore point in the economy is inflation, which remains below the Fed’s target of 2%. In June, Fed Chair Janet Yellen shrugged off inflation worries, saying that she expected inflation to remain soft due to temporary factors. The dollar was broadly higher after the June rate statement, as Fed policymakers were surprisingly upbeat about the economy and dismissed concerns about low inflation levels. The minutes could follow suit with a positive view of the economy, but the question remains as to whether the markets will buy in to the Fed’s optimism. If the answer is yes, then the dollar could respond with gains.

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