DAX yawns as eurozone surplus slips

The DAX index is showing little movement in the Thursday session. Currently, the DAX is trading at 11,423, up 0.10% since the close on Wednesday. On the release front, the sole indicator is eurozone trade balance. The surplus dropped sharply to EUR 13.4 billion in September, down from EUR 16.6 billion in August. The weak reading was a result of a weakness in exports, which fell 1.0% in September, on an annualized basis. On Friday, the eurozone releases key CPI reports.

As the largest economy in the eurozone, Germany acts as a bellwether for the rest of the eurozone. Investors were in for a shock on Wednesday, on the news that the German economy contracted in the third quarter, for the first time since Q1 of 2015. German officials tried to put a brave spin on the numbers. Economic Minister Peter Altmaier said that a 0.2% decline “isn’t a catastrophe” and that the economy would rebound in the fourth quarter. The ministry blamed the contraction on weakness in the auto sector due to new pollution standards. However, it’s likely that the skid is also due to the global trade war, which has also resulted in U.S. tariffs on European products. Investor confidence remains very low, and that could be a harbinger of more trouble ahead in the fourth quarter. On Tuesday, the well-respected ZEW research institute said that investors did not expect a rapid recovery from the current weakness. German ZEW Economic Sentiment posted a second straight soft release for November, with a reading of -24.1 points. This points to deep pessimism on the part of institutional investors and analysts.

The crisis over the Italian budget continues, as Rome rejected a demand from the European Commission to revise its draft budget. The Italian government said it would stick to its deficit target of 2.4%, which is within EU fiscal rules. For its part, the EU argues that the deficit target could reach 3.1% in 2020, which would breach the rules. With the ball in the EU court, what happens next? The EU could respond with financial sanctions, known as an excessive deficit procedure, which would amount to billions of euros. As the third largest economy in the eurozone, Italy’s challenge to the EU could have repercussions for the entire bloc, as officials in Brussels scramble to respond to the salvo fired by Rome.

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Economic Calendar

• 5:00 Eurozone Trade Balance. Estimate 16.4B. Actual 13.4B

• 2:00 German WPI. Estimate 0.2%

• 3:30 ECB President Draghi Speaks

• 5:00 Eurozone Final CPI. Estimate 2.2%

• 4:00 Eurozone Final Core CPI. Estimate 1.1%

• 8:00 German Buba President Weidmann Speaks

Open: 11,447 Low: 11,500 High: 11,376 Close: 11,423