DAX Muted as Investors Looking for Cues
The DAX Index is quiet in the Friday session, as the index is down by 0.30%. Currently, the DAX is trading at 11,920.90 points. On the release front, there are no eurozone economic indicator, so it could remain a quiet day. On Thursday, the DAX briefly pushed across the symbolic 12,000 level, but has since retreated.
In tandem with other stock markets, the DAX shrugged off the Federal Reserve’s January minutes. There were no dramatic hints as to the timing of the next move by the Fed. The most important comment was that policymakers believe that a rate hike "fairly soon" could be appropriate in order to head off an overheated economy. The minutes indicated that Fed policymakers remain confident that the central bank will raise rates gradually, given the strong performance of the US economy. At the same time, the minutes noted uncertainty about President Trump’s fiscal stimulus plan but little concern over the risk of inflation. So the million dollar question of when the Fed will press the rate trigger remains unanswered. Although pressure is slowly building towards a move by the Fed, there does not appear a sense of urgency to raise rates at the next meeting in March. According to the CME Group, the odds of a March hike are only at 17%, while the likelihood of a hike in either May or June stands above 40%.
Investors are constantly looking for cues, but shouldn’t count on the European Central Bank making any dramatic moves which will shake up the stock market. There’s no arguing that the eurozone has recorded moderate growth and higher inflation in recent months. Nonetheless, the central bank appears in no rush to tighten monetary policy, which would be bullish for the euro. ECB President Mario Draghi will likely be reluctant to make any major moves which could entangle the ECB in hotly contested elections in France and Germany (France goes to the polls in April, followed by Germany in September). At the same time, "political risk" in Europe is affecting investor confidence and weighing on the euro and the stock market. In June, Britain stunned the continent by voting to leave the European Union, throwing British-EU relations into crisis mode. In France, Marine Le Pen, leader of the far-right National Front, is the front-runner in the first round and could conceivably be elected president. Le Pen wants to take France out of the eurozone and has promised a referendum on French membership in the EU. Germany’s Angela Merkel, a pillar of stability on the continent, is in a tough election fight and voters may choose change rather than hand her a fourth term in office.
