The German economy is currently at a critical crossroads, buffeted by a double whammy of seismic shocks. The recently passed $2 trillion fiscal stimulus package will revitalize the economy. It has appeared to have bottomed out in the first quarter of the new year. US tariffs, planned or in place, represent the biggest threat to this fragile recovery. As traders look to the upcoming US macroeconomic data and insights from the Federal Reserve for direction, the situation remains tentative.
Even with such a fiscal package, it’s still too early to announce the end of the economic lull that has permeated Germany. Market participants will be keeping a very close eye on the core PCE that is expected. This measure, the Fed’s favorite gauge of inflation, is scheduled to come out later this week. This unique data has the power to shape trading strategies and provide key signals about where the economy is headed.
In the commodities market, gold prices have continued to make gains, recovering from a three-day downward trend thanks to a weaker US dollar. It’s worth noting that comments from US President Donald Trump have had an outsized impact on financial markets. This has injected even more indecision as we draw closer to the US Consumer Confidence print dropping. Hopes that US Federal Reserve is about to restart its rate-cutting cycle are boosting bullion prices.
The EUR/USD exchange rate therefore trades back close to the 1.0830 area in the middle of the European session, demonstrating the Euro’s firmness despite a rather mixed macroeconomic picture. March saw the IFO Business Climate index for Germany jump to 86.7, from 85.2 in February. This jump is the highest the index has reached since last July. Yet, this upturn fell short of hope reinvigorating optimism about Germany’s short-run economic prospects.
Not surprisingly, business and consumer surveys continue to be key indicators to watch for gauging where the US economy is headed in these unprecedented times. Several indicators point to a cyclical upswing on the horizon for Germany. External economic pressures continue as an ever-present dark cloud over the overall positive outlook.