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Germany is not out of Recessionary Threats

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

In October, German inflation decelerated notably, surpassing market expectations. The inflation rate came at 3%, marking the lowest level since June 2021, while economists were expecting a more moderate decline to 3.3%. This outcome reinforces the European Central Bank’s (ECB) assertion that its series of record interest rate hikes is beginning to yield the desired effects.

ECB President Christine Lagarde pointed to the anticipation of further inflation moderation as a key factor in the central bank’s decision to pause its interest rate hikes last week, following ten consecutive increases. These rate hikes have been exerting a significant impact on financial conditions, leading to reduced demand, and aligning with the ECB’s inflation target rate of 2%.

The German economy faced a contraction in the third quarter, raising concerns about the potential onset of a recession in Europe’s largest economy. The Gross Domestic Product (GDP) shrank by 0.1% compared to the previous quarter, which was slightly less severe than the 0.2% decline projected by economists. The decline was attributed to a decrease in household spending.

The data shows the challenges Germany faces in recovering from a downturn induced by energy-related factors during the past winter, followed by two quarters of stagnation or minimal growth, as per revised data.

A recent survey of purchasing managers revealed that the manufacturing sector in Germany continues to grapple with declining new orders, exerting pressure on the broader Eurozone economy. The impact of higher interest rates is notably dampening demand for industrial goods, which Germany relies on more heavily than its European counterparts for economic growth. While the services sector had shown more resilience, business surveys by S&P Global indicate a slowdown in momentum. Also, there are signs of strain emerging in the labour market, which had previously been a bright spot.

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Source: TradingView, DAX 40 Yearly Chart

European equities experienced substantial gains last week, driven by robust corporate earnings and a perceived dovish shift from central banks following several policy meetings. Markets currently expect no more hikes and futures imply an 80% likelihood that the central bank will commence easing as early as April, reflecting concerns about the region slipping into a recession.

In a somewhat unexpected development, German factory orders increased again in September, offering a glimmer of hope that the manufacturing challenges facing Germany might be abating. Monday’s data revealed a 0.2% rise in demand for the month, marking the second consecutive monthly gain and surpassing analysts’ expectations, which had projected a 1.5% decline. However, it’s worth noting that the August advance was revised downward by roughly 50%, down to 1.9%.

The statistics agency attributed September’s improvement to a 4.2% surge in foreign orders, which offset a 5.9% decline in domestic orders. Over the entirety of the third quarter, there was a 3.9% decline in factory orders.

The DAX 40 index enjoyed a robust rally last week; however, the rate-repricing rally has taken a breather on Monday. Unless the resistance level of 15,575 is breached to the upside, the current rebound may be viewed as just another bear market rally.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

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 Todorova

Senior Research

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.

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Julian Manoilov

Marketing Lead

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.

Oktay Kavrak

Head of Communications and Strategy

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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