Germany

The return of inflation – equities are an imperative

Inflation has been picking up worldwide for some months now. For example, the price hike in the USA recently reached 2.5%, the highest figure since 2012. In Germany, prices rose by 1.9% as at the end of January – a level last seen in 2013. It is not really surprising that the buzzword of “reflation”, meaning the return of inflation, triggered both by monetary and fiscal policy hitting a more expansionary gear and by rising commodity prices, is doing the rounds again. Specifically German citizens are disproportionately exposed to such fears, not least owing to the negative reports on hyperinflation in Germany just short of a century ago. For many years, dividend-bearing securities had the reputation of being inflation-proof investments. However, were the suitability of equities as a hedge against inflation to be true, then price trends for shares in periods of high inflation should be correspondingly better than at…

German property market: The strong price surge in 2016 weakened in the fourth quarter

The property price index that has just been released for Q4 2016 by the Association of German Pfandbriefbanken (Verband deutscher Pfandbriefbanken) proves in black and white what had already started to become clear in the course of the year: With an increase of exactly 6 percent, last year posted the strongest price rise for owner-occupied homes since the index was first launched in 2003. The upturn was slightly weaker for prices in detached and semi-detached houses, at 5.8 percent, while that for owner-occupied flats was a little greater at 6.5 percent. The pronounced increase not only shows that the price trend picked up pace quite significantly, in the wake of an increase of 4.5 percent in 2015 and of a good 3 percent in each of the four prior years. But also that, buttressed by a low rate of inflation of not even half a percent, the real price of…

German economy remains solid

The German economy is growing at a solid pace. However, the gross domestic product (GDP) data and the ZEW’s economic expectations published today would imply that it is not expected to accelerate further for the time being. While GDP gained 0.4 percent in the final quarter of 2016, the economic expectations of the financial analysts surveyed by the Mannheim-based ZEW are somewhat more sceptical for the months ahead. The pace of macroeconomic growth picked up again in the second half of 2016. Having increased by only +0.1 percent q-o-q in the third quarter, the growth rate climbed to +0.4 percent in the fourth quarter. Although this is minimally weaker than expected ahead of the analysts‘ consensus (+0.5 percent), it is nonetheless a solid result. Annualised, growth was still 1.7 percent at the end of last year. The domestic economy provided positive growth impetus at the end of 2016: public consumption…

A Changing World

In 2007 a long-lived economic upswing came to an end. This upswing was marked by a strong increase in world trade and was driven by significant productivity growth. This combination resulted in an inflation rate that remained relatively low for several years flanked by simultaneously high global growth rates of around 5%. During this phase bond yields also continued the downtrend they had been charting for many years – this was the “Goldilocks scenario.” In this period questions about the distribution of wealth within society were largely irrelevant and were not discussed – admittedly also because property prices in some countries led to illusions of affluence and excessive debt during this time. But increasing world trade led to gradual but ultimately pronounced shifts in the levels of affluence between countries and social groups. The emerging markets benefited very greatly from globalisation whereas in the industrialised countries many groups of workers…

If Mr. Schulz were the German Chancellor – a softer approach would be taken in some areas

The EU Parliament’s former President Martin Schulz is to be the Social Democrats’ (SPD) chancellor candidate for the general election in the autumn of this year. Now that we know who will be challenging Chancellor Merkel (Christian Democrats, CDU), it is worth taking a look at the SPD candidate’s positioning particularly with regard to financial market themes. Martin Schulz has been a member of the European Parliament for more than 20 years and his statements until now have therefore focussed primarily on European policy issues. He is known to advocate reform of the European stability pact, and considers the Maastricht criteria in particular to be outdated. For the deficit calculation, he believes that a distinction should be made between state consumption expenditure and investment. He is also of the opinion that the euro stability pact should be complemented by a social stability pact aimed at safeguarding the people in the…

Euro area purchasing managers remain in good spirits

The preliminary publication of the results of the survey of purchasing managers in the EMU paints an optimistic overall picture of sentiment. Although the aggregated Composite Index was down slightly from 54.4 to 54.3 index points, this still leaves it significantly above the full-year average of 53.3 points. The index for the service sector shed 0.1 points and is now at 53.6 points. The sentiment barometer for manufacturing industry rose, by contrast, from 54.9 to 55.1 ticks. According to the survey institute IHS Markit, the better performance in industry is due to a significant increase in incoming orders from abroad. Overall, the hiring intentions in both sectors were higher than at any time since February 2008. Ultimately, this reflects the exceptionally optimistic assessment of the business outlook among the polled purchasing managers. But the increasing price pressure caused by higher commodity prices and the weaker euro exchange rate against the…

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