HomeContributorsFundamental AnalysisDAX Yawns Despite Breakthrough in German Coalition Talks

DAX Yawns Despite Breakthrough in German Coalition Talks

The DAX has posted small gains in the Friday session. Currently, the index is at 13,217.50, up 0.11% on the day. On the release front, Eurozone Industrial Production posted a strong gain of 1.0%, above the estimate of 0.8%. Later in the day, ECB will release the minutes of the December policy meeting.

German coalition talks have been dragging for several months, but Friday brought reports of a major breakthrough, as Angela Merkel’s conservative bloc and the Social Democrats have agreed on a coalition blueprint. This ends months of political uncertainty,which has eroded Merkel’s standing and also sidelined Germany on issues such as Brexit and political reform in the eurozone. Still, the talks are only in the preliminary stage, and further negotiations will be continuing in the coming weeks. The conservatives and Social Democrats composed the last government, and Merkel and Social Democrat leader Martin Shulz will be trying to drum up support for the deal

The ECB minutes, released on Wednesday, were hawkish in tone. Policymakers said that risks to the current outlook were to the upside, which could necessitate a gradual shift in guidance in the next few months. As for the eurozone, the minutes stated that the economy was displaying "continued robust and increasingly self-sustaining economic expansion". When the ECB announced the taper in late 2017, it extended the program until to September 2018. However, with the strong economy, there are signals that QE may not be extended beyond September. On December 30, Benoit Coeure, who is in charge of the program, said on Dec. 30 there was a "reasonable chance" it would not be extended. On Sunday, Bundesbank President Jens Weidmann said the ECB should set a date to end QE. Talk of an end to QE has raised speculation that the ECB could follow up with a rate hike late in 2018. This would be a monumental move, as the ECB hasn’t raised rates since 2011.

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