The DAX is unchanged in the Wednesday session. Currently, the index is trading at 13,557.50, down 0.02% on the day. On the release front, German and Eurozone PMIs were mixed, but continue to show expansion in the manufacturing and services sectors. German Flash Manufacturing PMI slowed to 61.2, shy of the estimate of 63.2 points. There was better news from Flash Services PMI, which accelerated to 57.0. above the forecast of 55.6 points. The trend was similar in the eurozone, as Flash Manufacturing PMI dipped to 59.6, missing the estimate of 60.4 points. Flash Services PMI improved to 57.6, missing the forecast of 56.5 points. On Thursday, Germany releases Ifo Business Climate, and the ECB will make an interest rate announcement.
The German economy is off to a solid start in 2018. The services sector is performing well, as the January Services PMI hit 57.0, its highest level since 2011. Manufacturing PMI missed the estimate, but the reading of 61.2 points to sharp expansion. Job creation continues to gather steam, and companies are exuding strong confidence, despite the political uncertainty. President Angela Merkel is holding coalition talks with the Social Democrats, but negotiations could take weeks before a new government is formed.
The ECB meets on Thursday, and traders should not expect any dramatics at the first policy meeting of 2018. The Bank is expected to retain its pledge to continue buying bonds under its asset-purchase program (QE), which was extended until September. The ECB has trimmed QE from EUR 60 billion to 30 billion/mth, but is likely to hold interest rates for 3-6 months after that. Still, ECB policymakers have hinted that the Bank could wind up QE in September, and this pushed the euro higher in recent weeks. If ECB President Mario Draghi hints at an end to QE, the euro will likely gain ground. Draghi may prefer to keep a low profile until March, after policymakers have had a chance to review updated economic forecasts.
