German Factory Orders Decline

July 8, 2019

The release of figures last week showed that German factory orders declined by 2.2% month on month, significantly undershooting expectations of a 0.1% fall. The fall was driven by foreign orders which plunged by 4.3%, mostly from areas outside of the EU. The figures will increase concerns that slowing global demand is impacting German economic performance, which is highly dependent on manufacturing exports. Nevertheless, domestic demand increased, showing that there may still be some robustness in the economy. Furthermore, Germany needs to rebalance its economy away from export-driven growth and towards domestic consumption.

US Jobs Growth Faster than Expected

Figures released last week showed that employment in the US continued to grow at a steady pace. The non-farm payrolls data for June showed that there were 224,000 jobs created, against 72,000 in May and well ahead of the 160,000 consensus forecast. The figures will come as a shock to those who were expecting a weakening economic picture and pricing in a sharp rate cut by the Federal Reserve at their meeting at the end of the month. Markets were pricing in a 100% chance of a rate cut at the meeting on 31st July; however, strong jobs figures have thrown this into doubt. Monthly data can be volatile, and although June’s figure was strong, the recent trend still points to a slower rate of jobs growth, in line with the weaker global economy.

 Government Bond Yields Continue to Fall

Already low government bond yields fell further last week as investors continued to price in lower interest rates and potentially another round of quantitative easing. The nomination of Christine Lagarde to replace Mario Draghi as President of the European Central Bank (ECB) was received well by markets. She is expected to continue with his policy of ultra-loose monetary policy. The slowdown in the Eurozone economy has meant that the ECB is now expected to complete a rate cut and announce its intention to expand its quantitative easing programme. Ahead if this, Eurozone sovereign bond yields are increasingly becoming negative, meaning that investors will pay for the privilege of lending to countries from Germany to Italy.

Market Data

  % 1w* % 1m*
UK 1.74% 4.92%
US 3.46% 7.82%
Europe ex UK 1.63% 6.39%
Japan 3.49% 5.7%
Emerging Markets 2.42% 8.04%
Oil 0.99% 9.63%
Gold 0.81% 7.05%