Top Story

Stocks: Investors weigh German recession odds against central bank support

Recession fears are back in town following this morning’s publication of very poor manufacturing data from the Eurozone’s largest economy. Dr Copper was not happy; stocks and EUR/USD dropped, and haven flows into bonds caused yields to weaken, which in turn supported gold prices even further.  But equity indices managed to bounce off their lows as the session wore on. It remains to be seen whether recession fears will continue to dominate sentiment as we head towards the US open, given all the central bank largess. One other reason to for the stock market bulls to remain hopeful is that although the Eurozone is clearly struggling, it is worth remembering that the US economy is still relatively unscathed by its ongoing trade spat with China. And if the world’s two largest economies manage to finally end their trade war next month, then sentiment could turn positive quickly and we may even see a rebound in the export-oriented German economy, too.

German factory activity shrinks at fastest since 2009

But for now, the German economy just cannot catch a break and the latest purchasing managers’ index data from the key manufacturing sector underscores fears that it is headed for a recession. The PMI fell to 41.4 in September, down from 43.5 the previous month and well below 44.6 expected. This was the lowest level since 2009. The German PMI weighed on the Eurozone average, which held below the boom/bust level of 50.0 for the eight-consecutive month at 45.6. The German and Eurozone services PMIs also disappointed expectations, although they remained above the expansionary threshold for now at 51.6 and 52.0 respectively.

Central banks to rescue?

So, it hasn’t been a great start for data in what will be a light week for the economic calendar. But with geopolitical tensions heating up, Brexit becoming more uncertain and US-China trade spat ongoing, there’s plenty to look forward to this week. Amidst all the uncertainty, one thing is definitely certain: central banks will be here to support the markets in the form of keeping monetary policy extra-ordinary loose – as we found out last week. For that reason, we may not see the full impact of the economic slowdown in the markets, especially stocks.  

DAX dented by PMI miss, not broken

Indeed, the German DAX index has not completely broken down despite today’s sizeable retreat. It comes on the back of a large rally that began in august. So, this could just turn out to be a mere retracement rather than a full-blown reversal. Time will tell. Watch the index closely over the coming days to get a better signal.  For now, key support levels such as 12275 remain intact.

Source: Trading View and FOREX.com. Please note this product may not be available to trade in all regions.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT