The DAX is steady on Friday, as the index trades at 12,109.00. German stock markets and banks are closed for the Good Friday holiday, and there are no eurozone releases on the schedule. In the US, it’s a busy day, with the release of CPI and Retail Sales reports. CPI is expected to tread water at 0.0%, while the forecast for retail sales stands at 0.2%.
The DAX has enjoyed strong gains in the first quarter of 2017, buoyed by stronger growth data in Germany and the eurozone. However, the DAX has reversed directions in April, dropping 2.1 percent. North Korea and Syria have become flash-points for geopolitical tensions, and there is increasing speculation that the US and North Korea could find themselves at war if China does not succeed in de-escalating tensions and stabilizing a dangerous situation in the Far East. These events are weighing on jittery investors, many who have dumped their holdings in exchange for safe-assets such as gold, which is trading at 5-month highs.
The ECB appears in no hurry to make any changes to its loose monetary policy prior to 2018, or even later. Eurozone inflation levels have picked up in the first quarter, but March levels were softer than expected. This has eased the pressure on the ECB, which is not scheduled to reduce its asset-purchase program until December. In Germany, Wholesale Price Index dropped to a flat 0.0%, compared to 0.5% a month earlier. This was well short of the forecast of 0.4%. The downward trend continued with Final CPI, which dropped to 0.2%, down from 0.6% in February. Eurozone CPI made a big splash in February, when it hit the ECB’s target of 2.0%, and raising speculation that the ECB might need to respond by tightening monetary policy. However, the key index softened in March to 1.5%, short of the forecast of 1.8%.
US consumer behavior has been perplexing analysts, displaying a "hard/soft discrepancy" with regard to consumer indicators. Consumer confidence levels have failed to translate into stronger consumer spending, a key driver of economic growth. Confidence levels are considered "soft" data, compared to actual spending numbers, which are termed "hard" data. Will this pattern continue in the March releases? On Thursday, UoM Consumer Sentiment improved to 98.0, beating expectations and hitting a 3-month high. However, the markets are expecting retail sales reports, the primary gauges of consumer spending, to remain at weak levels. Core Retail Sales and Retail Sales are expected to remain unchanged in March, with gains of 0.2% and 0.1%, respectively. On the business front, surveys are pointing to a similar trend, with weak orders despite high confidence levels. The Fed will be closely monitoring consumer spending reports, and if these numbers remain soft, it’s unlikely that the Federal Reserve will press that trigger more than two more times in 2017.
