Inflation concerns grow as manufacturing prices rise ahead of tariffs
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German election helps lift the DAX.
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Could Russia deal help boost German economy.
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Inflation concerns grow as manufacturing prices rise ahead of tariffs.
The DAX is leading the way in early trade today coming off the back of a weekend election that saw the CDU/CSU take first place despite a notable showing from the far right AfD party. With the US pushing back against European interests, there is a desperate need for greater clarity and confidence in the German economy given its position at the head of the table in any trade negotiations. Notably, incoming Chancellor Merz has stated that Europe needs to become independent of the US, with Trump’s efforts to turn the tables on his allies bringing a greater need shift reliance away from the US when it comes to energy, trade, and military independence. Trump appears to prioritise short-term economic benefits for the US over the desire to carry favour with nations that favour the US ethical standpoints. While this may ultimately prove beneficial for US economic growth, it does highlight a tough time ahead for US allies like Europe or Taiwan.
This morning saw the German Ifo business climate and current conditions figures come in below expectations, with sentiment around Europe’s biggest economy clearly in the doldrums. Nonetheless, one glimmer of hope came in the form of the future expectations figure, with the unexpected rise to 85.4 helping to stem the three-month decline. In any case, there will be a hope that a political change of direction could help lift sentiment and drive a resurgence in German economic activity. Whilst Trump threatens the status quo, his efforts to end the Ukraine war could be hugely beneficially for the German economy, with the inception of the conflict marking a negative turning point as they had to diversify away from cheap Russian energy imports.
Inflation promises to be a key factor this week, as tariff fears appear to be playing a role in driving up goods inflation before they are even implemented. The surge in the prices paid metric within both Philly Fed and Empire state manufacturing surveys have come alongside a 30-year high for the Michigan 5-year inflation expectations figure. All eyes turn to Friday’s core PCE price index survey, with markets expecting to see a one-year high of 0.4% for the monthly metric.
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