The DAX started the week with a sharp decline and has resumed the downward trend on Thursday. Currently, the index is at 11,987, down 1.5% on the day. On the release front, it’s a very busy Thursday. German Ifo Business Climate fell to 97.9, shy of the estimate of 99.2. This marked the lowest reading in over nine years. German Final GDP posted a gain of 0.4%, matching the estimate. This was unrevised from the initial GDP reading earlier in May. German Manufacturing PMI dropped to 44.3 in April, down from 44.5 in March. Services PMI continued to point to expansion, with a score of 55.0. Eurozone PMIs followed a similar trend, with expansion in the services sector but contraction in manufacturing. The ECB releases the minutes of its April policy meeting, and voters go to the polls over the next several days to elect a new European parliament.
German business confidence dropped to 97.9 in May, down sharply from 99.2 in April. The decline was in response to weaker PMIs scores in May. German manufacturing PMI dropped to 44.3, marking a fifth straight contraction. Although services PMI continue to point to expansion, the May release disappointed, dropping from 55.6 to 55.2 and missing the forecast of 55.0 points. The manufacturing sector has been hit hard by the global trade war, and the German economy, the largest in the eurozone, managed just a 0.4% gain in the first quarter.
Investors are keeping a close eye on this week’s election in the European Union. Starting on Thursday, voters in 28 member states (including the U.K.) will elect lawmakers to the European parliament. Key issues included the economic slowdown, Brexit and the rise in Euroskpeticism. Euro-skeptics increased their representation in parliament from 12% to 25% in the last election, and with the dramatic increase in strength of populist parties, this trend could well continue. A strong showing by parties with an anti-EU agenda could have an important impact on upcoming elections in Italy, where the populist government wants to raise its deficit above EU rules. If euroskeptic parties do well in the election, investors could give a thumbs-down to the euro. As well, the outcome of the vote could have an impact on the choice of the new head of the ECB, as Mario Draghi steps down in October, after an eight-year term.
