Euro Crashes Through 1.10 – Is Germany in Recession?

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strong>Market Drivers September 22, 2019
German PMIs miss big taking Euro below 1.1000
UK Supreme ruling on Brexit expected
Nikkei 0.16% Dax -1.53%
UST 10Y 1.69
Oil $58/bbl
Gold $1518/oz
BTCUSD $9953

Europe and Asia:
EUR EZ PMI 52 vs. 53.1

North America:
US Flash PMI 9:45

The mild recovery in risk FX at the start of week’s trade quickly fell apart in early European dealing when EZ PMI reported shockingly bad results sending EURUSD back below 1.1000 level while USDJPY tumbled through 107.00 support.

The PMI data out of Europe was horrid with German Manufacturing hitting a new low of 41.4 vs. 44.0 expected and even the Frech manufacturing sector which appeared to be on the verge of recovery slipped back to 50.3 from 50.9 eyed. Overall, the composite EZ PMI remained just above the 50 boom/bust line but just printing at 52.0 versus 53.1 forecasts.

There is a good reason to think that Germany may be teetering on the verge of recession now as the manufacturing sector continues to contract. Today’s news also makes it perfectly clear that Germany desperately needs some fiscal stimulus to offset the massive demand shock from the growing global geopolitical tensions and the slowdown in trade. German officials remain reluctant to increase the budget, but the longer they wait the worse the situation may become. It’s clear that monetary policy has run out of gas and fiscal tools are needed to jump-start the economy.
The EURUSD meanwhile tumbled below the 1.1000 figure again but found support ahead of the 1.0950 level, but its just a matter of time before the unit retests the multi-month lows near the 1.0900 handle unless Germans start to shift their policy.

Meanwhile, in the UK the markets are awaiting the ruling of the Supreme Court on the legality of PM Johnson’s move to suspend Parliament. Although the ruling may go against the government Mr. Johnson may use other means to keep Parliament out of session. At this point, however, the political maneuverings has become noise as the clock ticks towards the hard Brexit deadline.

Cable has moved away from the 1.2500 level but has generally held bid as the market remains optimistic about a deal. However, with September nearly gone, the pressure on politicians will grow and if the pair loses the 1.2300 figure that will be a sign of markets losing hope.

Boris Schlossberg
Managing Director

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