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DAX Dips as Eurozone CPI Misses Forecast

The DAX index has lost ground in the Wednesday session. Currently, the DAX is at 12,753 points, down 0.37% on the day. On the release front, Eurozone CPI Flash Estimate dropped to 1.2%, shy of the estimate of 1.3%. Core CPI Flash Estimate followed a similar trend, dipping to 0.7%, short of the forecast of 0.9%. On Friday, Germany and the eurozone release Services PMI and the eurozone will publish retail sales.

Eurozone annual inflation is expected to dip to 1.2%, down from 1.3% in March, according to Eurostat. As well, Core annual inflation is forecast to edge lower to 0.9%, after three straight readings of 1.0%. These readings point to sluggish inflation, well short of the ECB target of around 2 percent. The weak inflation numbers are not surprising, as eurozone growth has softened in the first quarter. This is also reflected in manufacturing data, as German and eurozone manufacturing PMIs dropped for a fourth consecutive month.

The Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The markets were looking for some discussion about inflation and were not disappointed. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, in which the rate statement said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

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