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Europe: The Week Ahead (Aug 12-16), German Yields


Senior Market Analyst at Interactive Brokers

Interactive Brokers’ senior market analyst Steven Levine provides some insights into the European markets, with a focus on Germany. Germany has been caught up in a maelstrom of geopolitical uncertainties, including ongoing and escalating trade-related risks between the U.S. and China. Find out more in Europe: The Week Ahead (Aug 12-16), Germany – Falling In Yield Again at IBKR Traders’ Insight today!

Produced on August 8, 2019

Video Transcript:

Investors will be watching incoming economic data out of Germany in the week ahead, as global headwinds have generally slowed the gears of Europe’s growth engine. These include ongoing and escalating trade-related risks between the U.S. and China, as well as uncertainties over the path of Brexit. The U.S.-China trade conflict has been casting a shadow over the capital markets in general – driving risk aversion higher and spurring the yield on the 10-year German Bund to new lows. In fact, the recent bond rally has been largely responsible for turning Germany’s entire yield curve negative.

Against this backdrop, nervous investors will likely be paying close attention to Germany’s economic releases in the week ahead, which include updates on consumer prices, ZEW economic sentiment, as well as second-quarter GDP. The week gets underway Tuesday with a final reading on Germany’s consumer price index for July, after an earlier gauge showed a 1.7% year-on-year increase.  Germany’s Federal Statistical Office – Destatis – also noted that consumer prices are expected to rise by half a percent from the prior month, while the harmonized index – which is calculated for European purposes – is likely to notch up just north of 1% over the previous year. 

Meanwhile, Tuesday also brings a fresh reading of ZEW economic sentiment. ZEW president Achim Wambach has attributed the recent sour tone to an intensified conflict with Iran, as well as to the ongoing U.S.-China trade dispute, and “no discernible progress” with Brexit. Wambach added that the continued negative trend in incoming orders in the German industry, in particular, “is likely to have reinforced” pessimism among financial market experts. This pessimism may be reflected in lower prices of certain German stocks, with the iShares MSCI Germany ETF, for example, having fallen roughly 8.5% since July 3rd.  

Elsewhere on the calendar, investors Wednesday will receive an update on the pace of German GDP growth, after domestic demand helped lift the rate in the first quarter out of its previous states of stagnation and decline. Fitch Ratings, which affirmed Germany’s sovereign credit rating at its topmost triple-‘A’ status, recently noted that the “soft patch” in the nation’s economy “has proved to be more persistent” than it expected. Fitch analysts further noted that the underlying trend in Germany’s growth trajectory has remained weak — especially in the manufacturing sector – a reflection, they said, of stubbornly weak external demand.

For more details on Germany’s economic and financial well-being, read my full report: “Germany – Falling in Yield Again” on IBKR Traders’ Insight. In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more. I’m Steven Levine for Interactive Brokers, asking you to enjoy the week ahead.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Author Security Holding: No Positions

The author does not hold any positions in the financial instruments referenced in the materials provided.

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