Article / 10 October 2014 at 13:20 GMT

Macro Watch: Germany in recession?

By Mads Koefoed

Volatility may have returned to the markets, but in terms of economic indicators, this week has been relatively quiet following last week's series of event risks, including the better-than-expected US employment report. 

The Federal Open Market Committee minutes on Wednesday resulted in a seemingly over-the-top reaction, with EURUSD jumping around 0.75% and stocks rallying close to 2%.

The bad news continued out of Germany this week, sparking debate about a potential dip back into recession for the euro area's largest economy. On Monday, factory orders for August disappointed on already very modest expectations, falling 5.7% month-on-month verses an expected drop of 2.5%. 

However, it is worth mentioning that July's increase was an impressive 4.9%. It seems quite obvious that the geopolitical tensions between the Western powers and Russia have distorted the picture. If we concentrate on non-euro area factory orders, they surged 8.5% in July before tanking 9.9% in August, suggesting orders may have been brought forward to July to avoid the incoming sanctions.

The IMF released its World Economic Outlook, which included a downgrade of global growth to 3.3% this year from a prior estimate of 3.4%. Next year's projected growth was also lowered to 3.8% from 4% with the IMF stating that confidence and demand have both weakened as a result of debt overhang, high unemployment and geopolitical tensions.

The US economic calendar was quite dull – except for the aforementioned risk surge on Wednesday courtesy of the FOMC minutes – but we did get initial jobless claims. They came in below 300,000 for a third straight week and the less volatile four-week moving average fell to the lowest level since February 2006.

Next week will be all about company earnings with heavyweights Google, JP Morgan and Citigroup among those reporting.

– Edited by Oliver Morrison

Mads Koefoed is head of macro strategy at Saxo Bank 

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