The DAX has started the New Year with losses, continuing the downward trend which marked trading late last week. In the Tuesday session, the index is at 12,816.50, down 0.72% on the day. The DAX has dropped to its lowest level since September 8. On the release front, German and Eurozone Manufacturing PMIs improved in December. German Manufacturing PMI came in at 63.3, while Eurozone Manufacturing PMI climbed to 60.6 points. Both indicators matched their estimates. On Tuesday, Germany releases Unemployment Change. In the US, the FOMC will publish the minutes of its December meeting.
Global stock markets enjoyed a strong year in 2017, and the DAX climbed an impressive 13.0%. Investors gave a thumbs-up as the German and eurozone economies showed solid growth, and data in the fourth quarter has been strong so Expectations remain high that the positive trend will continue into 2018, which bodes well for the DAX. As the new year begins, the markets will be keeping a close eye on the political situation in Germany, as President Angela Merkel strives to put together a new coalition. If new elections are avoided and Merkel forms a new government, the DAX is likely to post strong gains.
The markets will be keeping a close look on the Federal Reserve on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, European stock markets could react with gains. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.
