A wave of risk off sentiment swept over European market amid mounting evidence of slowing economic growth in the region. The Dax shed a further 1.2%, putting losses across the week at 2.3%, the worst weekly performance for the German index since early February.
Caution dominated as data pointed to the eurozone economy stalling in the first quarter. PMI’s for the region were at the lowest levels since 2014. Manufacturing in Germany and France, the two largest economies in Europe, experienced contraction. The manufacturing sector is proving to be the weakest link as it experiences its deepest downturn since 2013 amid a sharp drop in demand. Whilst this is offset by a relatively stable dominant service sector, the overall picture points to an economy running out of steam.
Clearly problems in the eurozone are far from over and Brexit uncertainty coupled with the unresolved US – Sino trade dispute rumbling are only exasperating the problem. Brexit uncertainty is going nowhere fast and a trade deal between the US and China is still someway off. Even in the case of a trade agreement, Trump is keen for the existing US tariffs on Chinese imports remain in place for an extended period. All in all, the fundamental outlook is poor for the eurozone as a whole and more particularly for Germany.
Growing concerns over the health of the eurozone and German economy are being reflected in the ever – trusty bond market. German bonds often considered one of the safest investments around have rallied as the region’s outlook worsens. Today treasury yields dipped below 0% for the first time since 2016.
Wall Street pares yesterday’s gains
Weakness in eurozone business growth comes hot on the heels of a significantly more dovish Fed. The Fed abandoning plans for a rate hike in 2019 and cutting growth forecasts pulled US treasury yields lower. Stocks had moved higher on the notion of cheap money for longer being supportive of growth. However, the line between an accommodative policy boosting stocks and fear of a significant slowdown hurting stocks has quickly breached. Wall Street also started Friday sharply lower.
Pound rallies as Theresa May’s days are numbered
The FTSE was over 1.5% lower mid afternoon as the pound continued to climb on Brexit developments. Sterling was back in the $1.32 region as a no deal Brexit was successfully adverted and amid growing expectations that Theresa May will have to resign next week if her deal doesn’t make it through Parliament on its third attempt. A resignation from Theresa May would almost certainly result in a long delay for Brexit, the prospect of which sent it bounding higher towards the weekend. The stronger pound
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US economy: slower growth with stronger inflation
The dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.