The DAX index has moved upwards in the Friday session. Currently, the DAX is at 12,738 points, up 0.39% on the day. On the release front, German and Eurozone Services PMIs for April came in at 53.0 and 54.7 points, respectively, as both missed their estimates. Eurozone retail sales also disappointed, as the reading of 0.1% was well short of the forecast of 0.5%. In the US, the focus is on employment numbers, with the markets expecting mixed news. Wage growth is expected to edge lower to 0.2%, while nonfarm payrolls are forecast to rebound sharply, with an estimate of 190 thousand.
Eurozone and German services numbers softened in April. German Services PMI was the weakest since September 2016, and the eurozone reading also softened compared to March. This points to weaker expansion in services business activity, another indication of weaker eurozone growth in the first quarter of 2018. German numbers are raising concerns about the strength of the eurozone’s largest economy. Manufacturing PMI weakened for a fourth consecutive month in April, and retail sales posted a fourth straight decline. Inflation is also under pressure and remains well below the ECB target of 2 percent.
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.
