German Confidence Weighs on DAX and Pushes Euro to 2-year Highs

European stock markets are mixed, with DAX down and FTSE 100 up on the day. The Fed rally that underpinned broad gains on Wall Street Wednesday and Asia Thursday, failed to lift sentiment in core EGBs as the Dollar is under pressure and EUR/USD at levels last seen in 2015. Disappointing quarterly reports from Deutsche Bank, Bayer AG and Deutsche Boerse AG are adding to pressure on the DAX. German confidence surged to a fresh all-time high putting upward pressure on bund yields and weighed on the DAX. EMU money supply growth was steady and came in as expected. The Fed kept rates unchanged but said that the runoff in the balance sheet would begin relatively soon.

German Consumer Confidence Surges to Record High

German GfK consumer confidence surges to record high of 10.8 from 10.6 in the previous month. The unexpected jump higher ties in with record Ifo readings and confirms that the German recovery remains firmly on track. More arguments for the ECB to take begin the normalization process and reduce monthly asset purchases. The full GfK breakdown, showed also falling price expectations though, alongside improved economic confidence and the willingness to buy dipped despite a sharp drop in the willingness to save.

EMU June M3 money supply growth steady at 5.0% year over year, as expected. Borrowing data meanwhile showed a slowdown in the growth rate of loans to non-financial corporations to 1.3% year over year from 1.6% year over year, something for the doves at the ECB to argue with, although at the same time, recent ECB has highlighted the growing importance of market financing for non-financial corporations, which suggests bank lending is becoming less important. The growth rate of loans to households accelerated to 3.0% year over year, as a renewed acceleration in lending for house purchases outweighed the dip in consumer credit growth.

FOMC held rates steady and gave no firm date on the balance sheet unwind. However, the policy statement did indicate the run-off will begin “relatively soon,” versus this year in the June statement, though it basically reiterated comments from Fed Chair Yellen in her recent testimony. The decision was unanimous. The Fed said the economy has been rising moderately while job gains have been “solid.” On inflation the Fed said overall and core prices have “declined and are running below 2 percent; survey-based measures of longer-term inflation expectations are little changed, on balance.” Inflation developments will continue to be monitored “closely.” One important change versus the June statement was the elimination of word “recently,” referring to the decline in inflation, suggesting there’s some concern the weakening will be more long lasting.