Globally all eyes are on Germany. The engine of economic growth in Europe is damaged after two years of trade tension taking its toll on
global economic activity. Global trade volumes have contracted 1.2% y/y in August, the third consecutive monthly annual fall and global
manufacturing PMI remains below 50 thresholds. Germany stands as a bellwether for the global trade war, providing markets an insight into
the real effects of protectionism. Most recent data suggest the worst is possibly over (barring an escalation in trade tensions).
Industrial production in Germany dropped by -0.6% m/m in September, below the consensus for a -0.4% decline. The annual rate fell to -4.3%
from an upwardly revised -3.9% in August. In the data net trade was the likely culprit in driving the German economy into recession in 2Q and
3Q. However, production in energy and constitution rebounded with energy output also recovering. While yesterday, factory orders rose by
1.3% m/m in September, above the consensus for a 0.1% rise driven primarily by a 3.1% m/m surge in new orders for capital goods. Growth in
German factory orders has now steadied, though at a weak rate, suggesting soft output growth at the start of 4Q. This small bright spot could
indicate a bottom for Germany. Overall manufacturing sentiments and industrial production trends are not encouraging but a small
increase in leaders could signal a reversal in outlook. It too early for the EURUSD to stage a meaningful recovery with market monitoring key
of support at 1.1060.

By Peter Rosenstreich

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