Germany teetering on the brink of recession; GBP looks to gain

11:44 am 27 August 2019

Summary:

  • German final Q2 GDP Q/Q: -0.1% vs -0.1% exp

  • EURUSD remains near recent lows

  • Pound gains on Starmer comments

 

The main story this morning is the release of the final GDP print for the 2nd quarter from Germany which showed a negative reading for the 2nd time in the last 4 quarterly releases. These two contractions are the only sub-zero prints in the past 5 years and clearly show that Europe’s largest economy is slowing down and perhaps about to go into reverse. Looking at a breakdown of the figures it’s readily apparent that the slowdown as come due to external factors with exports showing their largest drop in 6 years which has more than outweighed a pick-up in domestic consumption. This could be seen to suggest broader issues for the global economy and reaffirms the notion that has been gaining credence of late that we’re in the midst of a worldwide slowdown in economic activity.     

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There’s been a slow drift lower in EURUSD since a death cross was printed just over a year ago and any rallies up into the zone between the 50-200 SMA have provided nice selling opportunities. Recent lows in the region from 1.1025-1.1065 have provided support but a break below there would open up the possibility of further declines. Source: xStation 

 

Given that other data points for Germany in Q3 have been weak there’s every chance that we see another contraction and satisfy the definition of a technical recession in an economy that is regarded as the powerhouse of Europe. Due to their lagging nature GDP prints aren’t normally big market movers and while the German stock benchmark is trading a little lower there’s not been much change seen in the bond markets or single currency.   

 

Pound gains on Starmer comments

There’s been a fairly broad move higher in the pound as the currency seeks to build on its recent attempts at a recovery. The most likely cause of the buying are comments from Labour’s Keir Starmer, who suggests putting legislation in place to stop a no-deal Brexit as opposed to pursuing a vote of no-confidence in the government. This suggestion may well be the best approach to halt a no-deal Brexit as there’s still a fair chance that a no-confidence vote would fail and therefore further embolden the government in their current stance. Lawmakers remain on their summer recess before returning next week and time is becoming very much of the essence for MPs who want to block a no-deal Brexit with the October 31st deadline looming ever larger.

GBPNZD is rising today but the 61.8% fib retracement around 1.9348 remains a potentially key resistance that saw a firm rejection yesterday. Source: xStation      

 

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