The DAX index has started the new trading week with gains. In the Monday session, the DAX is trading at 12,757. 50. The index has taken advantage of stronger oil prices on Monday. On the release front, there are no eurozone events on the schedule. On Tuesday, there are two key events – Eurozone Flash GDP and German ZEW Economic Sentiment. As well, the eurozone releases ZEW Economic Sentiment and trade balance.
Despite a lack of eurozone fundamentals on Monday, the DAX has posted slight gains, taking advantage of a sharp rise in oil prices. Brent crude has jumped 3 percent on Monday, and the DAX briefly touched a high of 12,833.00, a new record. The first quarter of 2017 has seen improved numbers in the euro area, largely due to strong numbers from Germany, the largest economy in the eurozone. Germany’s economy expanded 0.6% in the first quarter, compared to a 0.4% gain in Q4 of 2016. What was particularly encouraging was that the expansion was broadly based, with strong consumer and state spending, and an upsurge in the construction and manufacturing and export sectors. However, inflation levels continues to recede, after some strong numbers in the first quarter. In April, German Final CPI dropped to 0.0%, marking a 3-month low. This trend has also characterized inflation in the eurozone, as weaker inflation levels has lessened pressure on the ECB to tighten monetary policy.
The EU released its Spring 2017 Economic Forecast, and the report gave the eurozone a passing grade. The report noted that the European economy is in its fifth year of recovery, and forecast eurozone GDP growth of 1.7% in 2017 and 1.8% in 2018. On the inflation front, the report stated that inflation had risen in recent months, but this was mainly due to an increase in oil prices. Still, inflation was expected to reach 1.6% in 2017 and 1.3% in 2018, compared to just 0.2% in 2016. Stronger growth has led to lower unemployment, and the report projected that eurozone unemployment rate would drop to 9.4% in 2017 and 8.9% in 2018. At the same time, economic risks remain tilted to the downside, including US economic and trade policy under President Trump, the European banking sector and Brexit. This forecast was considerably more optimistic than the Winter 2017 forecast, as is apparent from the captions in the press releases for these two reports: The Winter forecast was entitled "Navigating through choppy waters", while the caption for the Spring forecast reads "Steady growth ahead".
US consumer spending and inflation numbers improved in April, but still fell short of estimates. CPI came in at 0.2%, short of the estimate of 0.3%. Core CPI, which excludes the most volatile items, posted a small gain of 0.1, shy of the estimate of 0.2%. Retail Sales came in at 0.3%, compared to the forecast of 0.5%. Retail Sales rose 0.4%, short of the estimate of 0.6%. Consumer confidence remained strong, as the reading of 97.7 beat the forecast of 97.0 points. These numbers underscored a troubling trend where strong consumer confidence has failed to translate into increased consumer spending.
