The DAX index has started the week with losses. In Monday’s European session, the DAX is trading at 12,190.00, down 0.40% on the day. On the release front, German and Eurozone Manufacturing PMIs softened in July and missed expectations. On Tuesday, Germany will release Ifo Business Climate.
The new trading week started on a sour note, as Eurozone and German manufacturing PMIs both in July and missed expectations. Still, the soft numbers are unlikely to weigh on the markets, as the PMIs continue to point to expansion in the German and eurozone manufacturing sectors. A stronger global economy has resulted in increased demand for European exports, and domestic consumer consumption has also boosted the manufacturing industry. The German economy continues to perform well in 2017, and this has helped boost the eurozone economy, which is showing stronger growth and lower unemployment. The German finance ministry sounded upbeat on Thursday, saying that "the current picture of economic indicators suggests that the economic upswing continued vigorously in the second quarter". GDP expanded at a strong clip of 0.6% in the first quarter, and Q2 is expected to post another gain of 0.6%. The economy received a thumbs-up from the IMF, which has raised its growth projections to 1.8% in 2017 and 1.6% in 2018. The fly in the ointment has been inflation, as both Germany and the eurozone continue to struggle with inflation levels well below the ECB’s inflation target of 2%. German policymakers have long argued that the German economy needs higher interest rates. However, the ECB has to also look after eurozone members who are not doing as well as Germany, and has insisted that it will not withdraw stimulus until inflation in the eurozone moves closer to the bank’s inflation target.
There were no surprises from the ECB last week, as policymakers maintained interest rates at 0.00% and the bank’s asset-purchase scheme (QE) at EUR 60 billion/month. The ECB has said that it will maintain QE until December "or beyond, if necessary". There had been speculation that the ECB might remove that "wiggle room" phrase, but the bank did not make any changes – perhaps Draghi was being careful not to provide the markets with an excuse to rush on euros, which occurred in June after Draghi left open the door to tapering QE prior to December.
With no news in the rate statement, the markets focused on the ECB President Mario Draghi’s press conference. Draghi sounded upbeat about the eurozone economy, noting there were signs of "unquestionable improvement" in the eurozone economy. Draghi acknowledged that inflation remains stubbornly low, and said that it was a question of time until the stronger economic conditions pushed inflation to higher levels. As for monetary policy, Draghi said the bank had not set an exact time for revisiting any changes to the current accommodative policy, but added that the ECB would review policy in September. These comments did not seem to break any new ground, but were perceived as hawkish by the markets and boosted the euro on Thursday.
