In the Czech Republic we woke up to a really cold morning, but a look at the stock markets could warm us up right after the morning. Asian markets reported an increase in volatility. What it was: Back on Friday, we wrote about the Chinese central bank and government's mix of support measures. As a result, the Shanghai stock market was up 7 % this morning. Clearly, the promised money will eventually flow somewhere. In Japan, on the other hand, skepticism reigned today. In the land of the rising sun, investors feared that the new Prime Minister Ishiba would push for higher taxes on businesses and capital gains.
And now the key question. Did Europe open today in green like China or in red like Japan? B is correct. Germany's DAX index is down 0.8 % today. German statisticians came out today with the news that the annual rate of inflation in Germany fell to a preliminary estimate of 1.6 % in September from 1.9 % in August. The market was not expecting such a significant slowdown in the rate of price growth. This is indicative of weakening demand within the German economy. This is not surprising, for example, in a situation where the local automotive industry is struggling. Last Friday after the market closed, carmaker Volkswagen announced that it was cutting its outlook for sales, margins and cash flow for the full year due to the worsening macroeconomic situation. The group expects
a drop in the number of vehicles sold from 9.24mn units last year to 9mn this year, while so far it had expected growth of 3 %. The company had already cut its outlook in July. And a paradox at the end.
The carmakers' union is threatening a strike and wants a raise at a time when the company is considering which plants to keep alive and which not to. This, too, hints at how difficult the position of the German car industry will be. There, the problems are certainly not just for VW. And Bloomberg has reported that the German government is about to cut its forecast for Europe's largest economy. Apparently, the German government now expects no growth in the German economy this year. According to Bloomberg, the German government is set to cut its 2024 growth forecast to - at best - stagnation from the previously projected 0.3 % growth. All indications are that a combination of weakness in German industry, led by the automakers, slack demand from China and too much pressure to green the economy is making it impossible for Germany to continue to grow. And it could get even worse for Germany if US import tariffs are increased after the autumn US presidential election and the return of Donald Trump.
Such German Chancellor Olaf Scholz has not yet experienced two consecutive quarters of economic growth since taking office in December 2021. Clearly, Germany is in for a shake-up politically as well. Slowing German inflation, combined with the weakness of the local economy, is reassuring investors that the European Central Bank will not take a break from softening the rules of the game this time. The market now gives 80% probability of a European Central Bank rate cut at next month's meeting. Confirmation may come as early as this week with a speech by European Central Bank chief Ch. Lagarde.
Markéta Šichtařová Next Finamce s.r.o. Nextfinance.cz
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