The DAX index has started the week with gains. In the Monday session, the DAX is at 13,020.50, up 0.21% on the day. On the release front, German PPI remained unchanged at 0.3%, edging above the estimate of 0.2%. The markets will be keeping an eye on ECB President Mario Draghi, who is testifying before the European Parliament Economic and Monetary Affairs Committee. Draghi will be discussing ECB monetary policy, and the markets will be looking for clues regarding future policy moves.
Germany is in political crisis, as coalition talks have fallen apart. The Free Democratic Party (FDP) pulled out of talks on Sunday. Christian Lindner, head of the FDP, did not mince words, saying that there was no "basis of trust" to enter a government with Angela Merkel’s CDU-CSU alliance and the Greens. The parties have been holding negotiations for a month, but have failed to bridge the gaps on issues such as immigration. So what happens next? Merkel has said in the past that she will not run a minority government, but if she holds fast to that stance, Germany would likely face another election. Some pundits are predicting that this could be the end of the Merkel era, which could usher in a period of political uncertainty in the largest economy in the eurozone.
Mario Draghi spoke at the Frankfurt European Banking Congress on Friday. Draghi was upbeat, noting the strong outlook for the eurozone economy. Draghi noted that GDP has risen for 18 consecutive quarters, and he expected the positive momentum to continue, pointing to positive global and domestic trends. The global economy has strengthened, and corporate and consumer debt continues to head lower.
The eurozone economy continues to perform well in the third quarter. German GDP accelerated to 0.8%, while Eurozone Flash GPD remained steady at 0.6%. However, inflation remains the fly in the ointment, with levels well below the ECB target of around 2 percent. Weak inflation has kept the ECB cautious regarding its monetary stimulus program. The ECB announced in October that it would chop asset-buying from EUR 60 billion to 30 billion each month, but added that it was extending the scheme until September 2018. Jens Weidmann and other senior policymakers want the ECB to act more aggressively, and have called on the ECB to announce a termination date to its stimulus program. However, Mario Draghi appears in no rush to wrap up the scheme, especially with no inflation pressures on the eurozone economy.
