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Germany's economic downturn wants to come out of Taiwan's stimulus measures, but the ECB may be the first to implement QE
Aug 22,2019
The content below was translated by Tencent automatically for reference.

SMM News: on Thursday, the euro hit a two-day low in European trading as concerns about Italian politics and the prospect of Brexit continued to ferment, putting pressure on the euro.

However, the subsequent release of French and German manufacturing PMI data were better than expected, pushing the euro to a three-day high. But analysts pointed out that although the German manufacturing PMI data was better than expected, the German economy did not show a significant improvement, the overall recession is still in the process, as Europe's largest economy, still hinted that the European economy faces no small challenges.

Although Germany recently said it would take stimulus measures, it must also support the euro. But given the challenges of Europe's political and economic prospects, the ECB may be ahead of easing, so the future of the euro may not be optimistic.

The recession of German manufacturing industry continues and the service industry continues to grow.

Germany's private sector continued to struggle in August, with a manufacturing recession and a slight slowdown in services activity, suggesting that Europe's largest economy was heading for recession, according to a survey released on Thursday.

Specific data show that the initial value of Germany's Markit manufacturing PMI in August was 43.6, better than expected, but still near an all-time low. However, the service sector PMI of 54.4, better than expected 54, is still very strong. As a result, the euro rose short-term from a two-day low and refreshed a three-day high.

Phil Smith (Phil Smith) of IHS Markit said the continued growth in the German service sector made up for the continued weakness in manufacturing, but the data were not enough to eliminate the threat of another small contraction in GDP in the third quarter.

As exports fell sharply, the German economy shrank by 0.1% in the second quarter, with confidence indicators showing little improvement in the three months from July to September.

Overall private sector job creation fell to a five-year low, while corporate expectations for future output turned negative for the first time since late 2014, according to the survey.

Germany is on the verge of a technical recession

On Monday, the Bundesbank warned that the decline in German exports in the summer could continue into the autumn, as the German economy is in recession. The central bank said the decline in orders for cars and industrial equipment in the second quarter was likely to continue in the third quarter, putting the economy on the brink of a technical recession.

In general, a recession is defined as two consecutive quarters of negative GDP growth.

As a result of international trade tensions, the German economy experienced a recession in the second quarter, with growth of minus 0.1 per cent. But a similar decline over the next three months may still be inevitable, as industry remains depressed.

Earlier in the day, the German finance ministry also said leading indicators showed a continued slowdown in the industrial sector. At the same time, market participants predict that the Bundesbank and the European Commission's forecast of 0.5% economic growth this year may be further revised down to a level closer to 0.2% or 0.3%.

In response, Deutsche Bank said that given the growing fragility of the global economy, the emergence of one or more risks could easily push the economy into a completely different situation.

German politics also faces challenges due to the deterioration of the economic outlook

While some analysts are optimistic that this is only temporary, it is a bad time for German politics.

The SPD in Germany's ruling coalition is waiting for the results of the leadership election, which many observers believe is more likely for left-wing parties to win. Because the SPD's approval ratings have fallen sharply in opinion polls.

Huitong Finance and Economics APP shows that the SPD's loss was clear by the time of the European Parliament elections in May. The SPD's approval rating fell directly from 27.3% to 15.6%.

The Greens, which previously had an approval rating of only 9.9%, reached 20.7%, surpassing the SPD to become Germany's second-largest party.

In response, Steven Schneider, chief economist at Deutsche Bank (Deutsche Bank), said the ruling coalition formed by the SPD and the coalition will also be hit hard in important state elections in Saxony and Brandenburg, in which the Greens and the right-wing Choice Party in Germany are expected to profit.

Germany wants to come out of Taiwan for stimulus measures, but the ECB is likely to implement quantitative easing ahead of German policy

On Sunday, German Finance Minister Olaf Schultz (Olaf Scholz) said Germany had enough financial strength to "go all out" to deal with any future economic crisis, suggesting that Berlin could provide as much as 50 billion euros in additional spending.

Schultz's comments came after last week's report that Germany was prepared to abandon its balanced budget rules and take on new debt in response to a possible recession.

In fact, as European bond yields continue to fall, bond yields in some countries have entered negative territory across the board, suggesting concerns about the outlook for the European economy.

Yields on eurozone sovereign bonds reflect borrowing rates paid by eurozone governments in 19 countries. German 10-year bond yields are now stable at-0.69 per cent, slightly above the all-time low of-0.73 per cent set last week. German 30-year bond yields also hit an all-time low of-0.22 per cent.

In response to this, Peter Chatterwell, head of interest rate strategy at Mizuho, the Bank of Japan, said,

Germany can release government spending only if it sees the threat of recession. Mr Chatterville argues that Germany's fiscal stimulus is conditional on a recession and that the ECB may not wait for German policy to land and restart quantitative easing ahead of time.

Inflation in the euro zone fell by more than half from 2.2% to 1% last year, leaving the ECB with little choice but to cut borrowing costs from already low levels.

Mr Draghi, the ECB, also said last month that the eurozone growth outlook had worsened and inflation was still well below the bank's 2 per cent target. He said the ECB would use all the weapons at its disposal to ease deflationary pressures.

Technical analysis

Although the euro was supported by a small rebound in manufacturing PMI in the euro zone during the day, the uncertainty of Germany's political and economic outlook still puts pressure on the euro in the future.

In the past week, the euro traded in an overall range of 1.1065 to 1.1110 against the dollar. If the euro can continue to move forward, 61.8% of the 1.2030-1.1065 score is near 1.1130, and 50% above the position is near 1.1150, the euro's short-term downward trend will ease.

If you accidentally fall below the 1.1065 line, the material test 1.1050 and August 1 low near the 1.1027 line.

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