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On The Pull

Finimize

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Finimize
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What’s going on?

With Germany’s unemployment rate unexpectedly falling in November, the country might now dig its heels in more than ever against the European Central Bank (ECB).

What does this mean?

The ECB has long been calling for Germany to boost its economy through extra public spending, but positive unemployment data might give the country’s policymakers even more reason to pay no attention. Even so, German industry is still in recession, and manufacturers have announced thousands of job cuts this year – including carmaker Daimler on Friday. Economists are now worried those job losses could hit consumer spending, which has helped the German economy narrowly avoid its own recession. And data released on Friday showing falling retail sales did little to allay those fears…

Why should I care?

For markets: Breaking a bond.

German unemployment may be low, but European unemployment – which is in the double digits for countries like Spain and Greece – is still higher than in other developed markets. Friday’s data also showed inflation (the rate at which the price of goods increase) in the bloc picking up, perhaps comforting the ECB that its low interest rate policy may indeed be working. That might explain why the bank wants to shift the burden of boosting the economy from cheap money to increased public spending. But if that did happen, the mix of more government borrowing and higher interest rates mightn’t bode well for European bonds.

For you personally: Back in stock. 

Investors have been pulling money out of the European stock market all year, even though its shares are on track for their best year since 2009. They seem to be suspicious of the rally, but might find the “fear of joining in” becomes “fear of missing out” – especially if they see economy-boosting government spending, a Brexit resolution, or a trade deal between the US and China. European stocks, then, could have another good year in 2020 as investors jump back in.

Originally Posted on November 29, 2019 – On The Pull

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