Last week’s data revealed that the Eurozone’s gross domestic product (GDP) experienced a meagre 0.1% growth during the second quarter, while consumer prices in August rose 5.3% on an annual basis, three times above the central bank’s target of 2%.
The European Central Bank (ECB) lifted its key interest rate by 25 basis point to a historic high of 4% last Thursday and also indicated that this might mark the conclusion of its year-long fight against persistently high inflation.
While this could be the final rate hike in the current ECB cycle, it does not signify the end of a period of tight monetary policy. Interest rates are expected to remain at these elevated levels well into the next year, with the ECB continuing, and potentially accelerating, its balance sheet reduction.
German stocks have dipped on Monday, following substantial gains in the previous week, as investors prepared for a week filled with central bank meetings worldwide, including rate decisions from Norway, Sweden, Switzerland, the UK, and the United States.
Global central banks will take centre stage this week, especially after the ECB’s indication of a halt to rate hikes. The Bank of England (BoE) is expected to raise rates for the 15th time later this week, while the Federal Reserve appears poised to keep rates on hold. Similar to the ECB, if the BoE does execute a rate hike, it is likely to be the final one.
The rally in the German equity benchmark has lost momentum over the past four months and the index has been trading sideways, fluctuating between 15,456 and 16,528. While at this stage the up trend from the September 2022 low remains intact the technical and fundamental backdrop has deteriorated, therefore investors should monitor key support of 15,456 as a break below this level could trigger a sharp pull back in the stock market.
In its monthly economic report released on Monday, the Bundesbank forecasted a contraction in the German economy this quarter. The nation’s industry is grappling with a recession, and private consumption is contributing minimally to growth. Despite solid wage increases and a strong labour market, households are exercising caution in their spending habits. Additionally, weakening industrial performance is exerting downward pressure on economic output.
Although Eurozone inflation has halved since late 2022, it remains uncomfortably high, prompting the European Central Bank to elevate its deposit rate to a record 4% to curb rapid price increases. This surge in financing costs is expected to further impede economic growth, as is the decline in orders intake by the crucial German industrial sector.
The Bundesbank emphasized that Germany’s economy is likely to contract this quarter, and to foster a more favourable long-term outlook, officials must address deep-rooted challenges to the country’s economic model. Despite moderating inflation, robust wage growth, and a resilient labour market, consumer spending remains subdued. Meanwhile, the manufacturing sector’s weaknesses are intensifying, and higher financing costs could exacerbate strains on both domestic and international demand.
Although businesses have weathered recent challenges relatively well, such as the energy price shock, and there are no imminent signs of a collapse in the manufacturing sector, there exists a widespread need for comprehensive actions to adapt to the evolving economic landscape. The Bundesbank stated in its monthly report, “The issues that require attention are multifaceted and interconnected. Politicians in Berlin are taking steps in the right direction, but these efforts must be consistently implemented and sustained.”
The rapid transition away from Russian fossil fuels, disruptions in global trade, and an aging society have ignited a debate about whether Germany is confronting a period of economic underperformance. To address the elevated energy costs resulting from the conflict in Ukraine and the green energy transition, the Bundesbank emphasized the need for the swift construction of renewable energy sources and networks, alongside simpler and expedited public planning and approval processes.
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.
Julian joined Leverage Shares in 2018 as part of the company’s primary 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.
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.
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 Leverage Shares 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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