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Europe Week Ahead (Feb 3-7): Green Shoots Spotted Sprouting in Germany’s Economy

By:

Senior Market Analyst at Interactive Brokers

IBKR senior market analyst Steven Levine provides some insights into Germany’s flagging economy, including potential improvements in the country’s exports and industrial sectors. Meanwhile, Germany faces other risks, notably to its service sector, amid threats from the Chinese-borne coronavirus, as well as from ongoing pension reform protests in France.

Find out more, including how Germany’s financial markets are faring against this backdrop, and visit IBKR Traders’ Insights for more look-ahead features available now!

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Produced on January 27, 2020

Video Script:

Market participants in the week ahead are set to receive updates on Germany’s manufacturing sector, amid significant weakness in its automotive and mechanical engineering industries – as well as likely stagnation in the broader German economy in the final quarter of 2019. However, economists at Germany’s Bundesbank said they think manufacturing in the country could stabilize at the start to this year, given the recent reprieve of industrial sector deterioration and rise in exports – this while short-term expectations of export performance have also recovered – in fact, they’ve crossed into positive territory for the first time in six months. Phil Smith, an economist at IHS Markit, noted that while German manufacturing activity closed out 2019 with further weakness “and remains a thorn in the side of the economy, forward-looking survey measures for new orders and output expectations both give off more positive signals.” Smith added that “the US-China ‘phase one’ trade deal and a potentially clearer path to Brexit make for a more settled backdrop on the international stage.”

Also, on a more positive note, Germany’s construction sector has been booming amid upbeat income prospects from households and favorable financing conditions. But while the backdrop has been supportive for some German stocks – as evidenced by the iShares MSCI Germany ETF, which includes among its top holdings financial sector firm Allianz and industrial manufacturer Siemens, more recent fears about global contagion from the deadly, Chinese-borne coronavirus has generally spurred an exodus out of the ETF and towards safe-haven assets. Market participants have also pointed to strikes in France over pension reforms as likely to place pressure on Germany’s service sector, which to date has been a bright spot in the nation’s economy despite the overall weakness.

Investors in the week ahead will receive fresh figures on German manufacturing and services from IHS Markit on Monday and Wednesday, followed by updates on Factory Orders and Construction on Thursday, then Germany’s Trade Balance and a fresh gauge of Industrial Production ahead of the weekend. Meanwhile, the country has its eye on a near-term Green Bond sale, the proceeds from which are intended to be used exclusively for financing green projects. German finance minister Olaf Scholz said that the debt will be offered as “twin bonds”, meaning they will be sold alongside conventional Bunds with the same maturity and coupon. Scholz said that these green issues will “eventually be issued at all standard maturities, with the aim of appealing to longer-term investors, such as pension funds and insurance companies, as well as those on the short-term end of the spectrum, such as central banks.” He added that this would enable Germany to become the benchmark issuer of green bonds on the euromarket, as well as help the country towards becoming a leading center for sustainable finance – one of the aims set out in the 2030 Climate Action Program.

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.

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

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