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ZEW suggests limits to German growth

Market Analysis


The dollar rebound has gained some traction in the London AM session, concomitantly with market narratives talking about the rise in 2-year Treasury yields to near two-year highs (which has been seen ahead of the auction of 2-year notes later today). The greenback is presently showing a 0,4% gain versus the euro, and a 0.5% rise against the yen. EURUSD posted a fresh four-session low at 1.2340, extending the loss from Friday’s 38-month peak at 1.2556 to over 2 big figures, and reaching the 61.8 retracement Fibonacci level. Next support levels come at 1.2270 and 1.2235. Immediate Resistance is at 1.2430

This swing lower was also boosted by the release of German January inflation this morning but also of the German ZEW Sentiment earlier. German Jan PPI inflation fell back to 2.1% y/y,from 2.3% y/y in the previous month. A less than expected dip, that was mainly driven by a deceleration in energy price inflation to 2.2% y/y from 3.1% y/y in the previous month.

German ZEW investor confidence fell back to 17.8 from 20.4 in the previous month. The dip was expected and the reading is in fact higher than Bloomberg consensus of 16.0, but the dip in the current conditions indicator to 92.3 from 95.2 was more pronounced than anticipated, with the mix sending 10-year Bund yields down from earlier highs, but the 10-year remains up 0.6 bp on the day at 0.736%. That investor confidence has waned in the light of recent market turbulence should hardly be a surprise and so far at least optimists still far outnumber pessimists, so that we don’t see the reading as signalling a significant downturn in economic activity in Germany. Still, the numbers confirm that the room for a further acceleration in German growth is limited, partly also due to capacity constraints, although the ZEW will be more impacted by market concerns about the impact of waning central bank support and spreads are widening again this morning.

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Andria Pichidi

Market Analyst


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