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DAX flies after miserable EU data

It looks like investors are ignoring mounting economic problems in Germany, buying the German DAX index.

Global stocks advanced on Wednesday, leaving behind any negative macro news and geopolitical events, with the German DAX jumping half a percent and trading near 13,500 EUR ahead of the US session.

Weak EU numbers

According to official data issued by Eurostat on Wednesday, retail sales in the Eurozone decreased by 1.2% monthly in June compared to an expected 0.0% down and a previous decline of 0.4%.

Annualized Retail Sales for the bloc were -3.7% in June compared to -0.4% in May and -1.7% projected.

Separately, the Producer Price Index (PPI) for the Eurozone came in at 35.8% year on year and 1.10% monthly. Both numbers were above market forecasts.

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ECB more active in Italian bonds

In the first announcement since the ECB turned on PEPP reinvestment flexibility, we see a significant skew in country allocation throughout the month of July 2022, moving away from core nations like Germany and toward the periphery, particularly Italy and Spain.

In June and July, the ECB sold a lot of German Bunds while buying many Italian government bonds. This is the ECB directing maturing government bond revenues from core nations like Germany and the Netherlands to Italy’s advantage.

Taiwan crisis continues

Regarding the China-US tensions, US House Speaker Nancy Pelosi informed the deputy head of the Taiwan parliament on Wednesday that they want to boost parliamentary interactions with Taiwan.

While Pelosi’s trip to Taiwan until August 4 has continued to infuriate Beijing, China has persisted in enforcing trade restrictions against Taiwan. More than 2,000 of the 3,200 food goods from Taiwan that were being imported by the China Customs Administration have been halted since Monday.

โ€œThe Chinese Communist party is extremely hostile towards Tsaiโ€™s DPP, which it describes as โ€œTaiwan independence elementsโ€ despite the fact that the party supports keeping the status quo in the Taiwan Strait,โ€ per the Financial Times (FT).

The July Services ISM, expected to fall to 53.5, will be revealed during the US session. Orders from the factories are also on the agenda.

From the technical perspective, as long as the index trades above previous highs at 12,430 EUR, the short-term outlook seems bullish, targeting the 13,660 EUR level. Alternatively, a drop below this weekโ€™s lows of 13,340 EUR could prompt further selling toward 13,000 EUR.

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