German inflation fell to 10.0% year-on-year in November, preliminary estimates showed on Tuesday, down from October’s all-time high of 10.4%. The decline was mainly driven by easing energy prices over the past month (38.4% vs 43.0%); however, there was no let-up in the increase of food prices, which ticked up to 21% from 20.3%.
The drop also breaks a 12-month streak of fresh record highs for the CPI. Still, the rate remains uncomfortably high and well above the European Central Bank’s target of about 2%, suggesting that further monetary tightening to combat high inflation is likely.
The ECB has increased interest rates by 200 basis points to 1.5% over the past three months in its fight against inflation. ECB president Christine Lagarde has repeatedly said that taming inflation is one of her priorities and has hinted that policymakers will continue to raise interest rates to a level that would actively slow the economy, as pent-up demand has percolated through the economy since COVID-19 restrictions have been lifted.
Lagarde warned that inflation might not have peaked yet and left open the possibility of further aggressive interest rate increases. She also pointed to the bank’s intention to decide on the key principles for reducing its balance sheet when its governing council next meets in December.
Lagarde also warned governments against being too generous in their efforts to support the economy through what is likely to be a difficult winter, with sky-high energy prices and rising unemployment. Fiscal support, she argued, “should therefore be targeted, tailored and temporary. It should be targeted, so that the size of the fiscal impulse is limited and benefits those who need it most”.
Several ECB officials have indicated that the next interest rate hike may be smaller than the previous two consecutive increases of 75 basis points. The slowdown in the Eurozone has raised the risk that the central bank could tip the economy into a recession by overtightening, despite the ECB having some of the lowest interest rates in the world.
The German economy grew 0.4% in the July-September period compared with the previous quarter supported by robust consumer spending. However, GDP is expected to shrink in Q4 2022 as well as Q1 2023.
Data released on Monday by the ECB showed new lending to households and businesses fell in October, while household deposits rose at their slowest rate since the start of the pandemic. This clearly shows that consumers save less as red-hot inflation bites.
Despite all the talk of a recession, multi decades high inflation and tough winter ahead, the DAX 40 index staged an impressive rally from its September’s low, surging almost 23%. However, we cannot ignore the fact that the rally stalled over the past few weeks and the market has been consolidating in a mildly upward sloping trading range. The daily RSI indicator has reached strongly overbought territory suggesting that a pull back to unwind the overbought momentum conditions might unfold soon. The index is facing a band of overhead resistance between 14,700 and 14,925 therefore near-term upside from here is likely to be limited. Over the medium-term, we are of the view that downside risks prevail as we are not convinced a new bull market has started yet.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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