German PMI data reinforced investors fears that the county is heading for a recession. German manufacturing PMI data printed at a better than forecast 43.6, ahead of the 43 level forecast, whereby 50 separates expansion from contraction. This is the seventh straight month of contraction. Despite the better than forecast reading, the figures make for a depressing read.
The manufacturing sector is still deep in contraction. Orders at factory and service companies are falling at the fastest pace in 6 years and more companies now expecting output to fall rather than rise across the coming year. Concerns are growing that weakness in the manufacturing sector are spreading.
German service sector activity dropped to a 7-month low. Whilst 54.4 is comfortably within expansion territory, this could decline over the coming months, particularly if the contraction of the manufacturing sector continues or continues to languish at current levels,
The persistent weakness in what was once the powerhouse of Europe doesn’t bode well for economic growth in the third quarter as Germany remains caught up in the US – Sino trade dispute. As global trade tensions show no signs of easing up and amid slowing demand from China and continued car industry woes, Germany entering a recession in the third quarter is almost a given.
Following the release of the PMI data, the DAX shot higher, paring opening losses, reaching a session high of 11840. Rather than weaker data hitting risk sentiment, we saw the DAX gaining ground on stimulus optimism and the weaker euro, a big plus for an exporter country such as Germany. The ky level for the Dax is 11860. A break through here could point to a brighter outlook for the index and indicate more upside is to come.
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