Germany's largest index, the Dax (DE40), has risen by more than 20 percent since its recent lows. It seems that this may have been influenced by, among other things, falling commodity prices, particularly for natural gas, which, according to IMF data, has fallen by more than 21 percent since its peaks. Could this signal the start of a change in trend or just a rebound from a bottom?
Inflation key to the German economy
According to the President of the Federal Statistical Office of Germany: “The inflation rate in Germany - measured as the change in the consumer price index (CPI) compared to the same month of the previous year - was +10.4 % in October 2022. The inflation rate has thus increased again after +10.0 % in September 2022. The main causes for the high inflation continue to be enormous price increases for energy products. But we are also increasingly observing price increases for many other goods and services. Rising food prices are now particularly noticeable for private households.”
Today's data from the ZEW Economic Indicator, which rose by 22.5 points to -36.7 in November (values below 0 points indicate a deterioration in the situation), thus beating some of the best forecasts (-50 points were expected), seems to have warmed the climate. As the institute's commentary states: "The latest reading suggested the economic outlook for Germany has improved significantly compared to October, likely due to hopes that inflation rates would fall soon and policymakers would not have to tighten monetary policy as hard and/or for as long as feared. About 50.8 percent of the surveyed analysts predicted a deterioration in economic activity over the coming months, while 14.1 percent of them expected it to get better and 35.1 percent expected no changes.”
Additionally, as Investing.com analyst Geoffrey Smith notes: “The benchmark DAX index rose nearly 1% on Monday after the European Commission gave Berlin permission to nationalize a former unit of Russian gas monopoly Gazprom, bolstering the efforts of Europe's largest economy to restore order to its energy market after the chaos caused by Russia's war in Ukraine.”
Source: MT5, DE40, Daily
EUR/USD a forecast for change for the European market?
The cumulative data suggesting a possible improvement in the European market situation seems to have coincided with increases in the EUR/USD pair, which has risen by more than 6 per cent since its recent lows. This may be a reason for global investors to switch to an improving economic situation in the European market, expectations of falling inflation, or even the valuation of the end of the conflict in Ukraine. However, it seems that until we see the first declines in euro area interest rates, confirmation of a change in trend may seem doubtful.
Source: MT5, EURUSD, Daily
Author: Grzegorz Dróżdż, a Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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