Dax Resilience for now, but watch PMIs
City Index April 20, 2012 2:46 PM
<p>Today’s release of the April IFO business sentiment survey showed the sixth consecutive monthly increase in the Business Sentiment survey, albeit at a smaller pace […]</p>
Today’s release of the April IFO business sentiment survey showed the sixth consecutive monthly increase in the Business Sentiment survey, albeit at a smaller pace of improvement than in previous months. The Expectations component was flat (no rise for the first time in seven-months). Interestingly, Germany’s Purchasing Managers’ Index for manufacturing and services have both started to turn back down after the brief rebound earlier this year resulting from improved liquidity conditions, courtesy of the ECB’s December & February LTROs. In fact, manufacturing PMI dropped back below 50 in March, while the services PMI slipped for back-to-back months, reaching 52.1.
If the tapering off in the IFO begins to move in line with the retreat in the PMI, then this could clash with the ECB’s attempts to leave the LTRO behind and return to worrying about inflation –as was hinted by Mr. Draghi last week. Meanwhile, the Bundesbank has explicitly stated monetary policy is no solution to the eurozone problems and that “We shouldn’t always proclaim the end of the world if a country’s long-term interest rates temporarily go above 6%”. Such commentary suggests escalating obstacles to the ECB the next time it mulls a fresh round of asset purchases and/or long term refinancing operations.
Since their peak in mid March, Spain’s IBEX is off 17%, Italy’s FTSEMIB is off 16%, Germany’s Dax is off 6%, while the S&P500 is down 1.5%. At this point, the peripherals’ decline may be more likely to extend the pullback in the Dax than is the latter likely to support the peripherals. Looking at the Dax weekly chart, the next rebound will have to break above the 6900 figure to shake-off the last four weekly declines. On the downside, the confluence of supporting dynamics stands at 6540, which combines the 100 WMA and the seven-month trendline support (from Sep low). A weekly close below 6500 risks triggering the return to 6000. The question then becomes, at what equivalent of the peripherals would such levels be?
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.