The DAX started the week with considerable gains, but has steadied in the Tuesday session. Currently, the index is at 13,298.50, down 0.08% on the day. On the release front, German Ifo Business Climate dipped to 117.2, short of the forecast of 117.6 points. On Wednesday, Germany releases PPI and the eurozone publishes Current Account.
German coalition talks have taken a shift, as President Angela Merkel’s conservative bloc has entered into exploratory talks with its previous junior coalition party, the Social Democrats (SDP). The conservatives had a poor showing in the September election, and talks with smaller parties proved fruitless. The formation of new government promises to be a drawn-out process, with the sides not expected to discuss substantive issues until early 2018. Many SDP lawmakers want a more senior role for the SDP in any coalition, and the SDP will likely demand key portfolios in a new government. Despite the political uncertainty, the German economy continues to look very strong, as major indicators remain at high levels.
President Trump fared badly when he tried to replace Obamacare, but his tax reform proposal is poised to become law, barring any unexpected surprises. On Friday, the legislation passed a major milestone, as the House and Senate hammered out the differences in their tax proposals and drafted a uniform bill. The legislation is expected to be voted on in the House on Tuesday and the Senate on Wednesday. With Democrats in both branches opposing tax reform, the Republicans will need every vote in the Senate, where they have a thin 59-41 majority. Several Republican senators who were undecided have said they will vote in favor, so the bill is likely to pass through Congress and will then be signed into law by President Trump. This marks the first major overhaul of the US tax code in 30 years, and would represent a huge victory for Trump, ahead of Congressional elections in 2018.
