German Industrial Output Sinks

August 12, 2019

Automobile Trade WarFigures out last week showed that industrial output in the Eurozone’s largest economy sank by 1.5% month on month in June, significantly more than the 0.4% contraction predicted by economists. This significant fall highlights that the current recession in the German manufacturing sector is far from over an may well be accelerating. Weaker demand from China and feeble demand for cars were the key reasons for the fall. While Germany has so far managed to avoid a recession courtesy of the services sector, the longer a contraction in the key manufacturing sector continues, the more likely it is to impact the broader economy. This data backs up the change of direction made by the European Central Bank to loosen monetary policy and any further weakness in the economy will lead to greater calls for a fiscal stimulus.


Chinese Yuan breaks Seven

Markets were rattled last week as the Chinese Yuan passed through the phycological seven per USD, to a level not seen since 2008. The move was driven by further comments by Donald Trump that tariff levels could increase further and the US treasury department labelling China as a currency manipulator, a largely symbolic move. The weakening of the currency will take some pressure off the higher US tariffs; however, unless an agreement is reached, exports will continue to suffer as manufacturing moves to neighbouring countries. The US-China trade war remains at the forefront of investors’ concerns although, with recent adverse developments now priced in, there is now scope for a positive surprise.


Oil Price falls

The oil price has now fallen by over 10% over the last month as traders have attempted to price in the slowing global economy and the likely fall in oil demand. Brent Crude now trades at below $60/bbl, the lowest level for over six months and well under the $85/bbl it reached in October last year. Furthermore, the lower oil price is in spite of the current tensions in the Middle East, with Iran attempting to disrupt the strategically critical Strait of Hormuz. Nevertheless, lower oil prices are currently a benefit to consumers who will receive a boost to their discretionary incomes as a result of cheaper fuel prices, and headline inflation will ease, meaning that Central Banks will continue to be comfortable easing monetary policy to support the economy.


Market Data

  % 1w* % 1m*
UK -1.58% -3.22%
US -0.09% 1.18%
Europe ex UK -0.04% -0.36%
Japan -0.81% 1.73%
Emerging Markets -1.90% -2.58%
Oil -5.08% -5.27%
Gold 3.88% 10.39%