Having barely rubbed the weekend’s sleep of its eyes, Monday morning brought a dismal German Ifo Business Climate Index that set the negative tone for the euro for the remainder of the day. A post- Great Financial Crisis low in industrial sector optimism drove the headline reading to a 2012 low at 94.3 in August. Clemens Fuest, the Ifo director, was quick to illustrate how bleak the report’s outcomes are, noting that “not a single ray of light was to be seen in any of Germany’s key industries.” The geopolitical implications of yet another worrying German data point may be more interesting than the reading itself, as it may set things in motion elsewhere. First, the German industrial sector is in dire straits, which may force Germany to seek a more conciliatory tone on Brexit. This because the UK is one of Germany’s main trading partners and a major destination for its car exports. Second, German data that reeks of recession may force the governing parties in Germany to gather the courage to finally embark on some fiscal expansion. This has been a positive tail risk for the Eurozone economy for a while now and rumours in this direction appear to be swelling. Considered from this perspective, dire German data may actually have positive knock-on effects superseding the first-order effects, implying there may be some diamonds hidden in the dirt of Germany’s downfall in data.


On an eventful day on markets, sterling, for once, wasn’t in the main focus as US-China trade and worrying German data eclipsed the Brexit newsworthiness, for once. Such a blissful state is unlikely to continue this week with Labour MP Keith Starmer calling the first shot. Starmer appears to aim to  emphasize the EU-UK negotiations may be stuck, but not the Labour party, as he stated Labour will campaign for remain if there will be a second referendum. This should be taken with a grain of salt though, as many within the Labour Party will disagree with this stance and Starmer at this point is not the leader of the Party. Meanwhile, the chances of a no-deal Brexit seem to have increased after last week showed Boris Johnson’s meetings with Angela Merkel and Emmanuel Macron have not yielded any breakthroughs. Parliament will be back from recess next week on Tuesday the third, which means the plot may thicken as Members of Parliament are preparing their next move to bar a no-deal Brexit.


The dollar continues to trade on the tides of President Trump his moods, as the greenback weakened on Friday on the newly announced round of China export tariffs, but strengthened after Trump spoke soothing words on Monday. Trump sowed even more confusion than usual yesterday by praising Chinese President Xi for looking for a “calm resolution”, which he quoted as the reason for the trade talks to continue. This was taken as positive news for the global risk sentiment and later wasn’t completely erased by Chinese officials saying there had been no contact between the US and China that could be the base for the “calm resolution” tweet by Trump earlier. Nevertheless, trade sentiments improved somewhat, which marginally lowered the amount of Federal Reserve rate cuts priced in. Also, the Japanese yen came down from a three year high after being propelled into space after the ongoing trade war woes and global growth concerns. US Core Durable Goods Orders yesterday did indicate the yen rally has further legs to run, as economic uncertainty had the reading disappoint the expectations with a 0.4% monthly contraction. The NFIB survey suggests there are worse times to come, as companies inquired about their capex spending plans are generally downbeat for the coming months. Today sees the CB Consumer Confidence and the Richmond Manufacturing Index at 15:00 BST.


A more upbeat global risk sentiment in combination with oil prices that were on the ascend for the first time in five days lend wings to the loonie, which had the Canadian coinage top the G10 board together with AUD. Canada’s data calendar remains empty for today, which will have us wait for the Current Account data on Thursday and the Gross Domestic Product figures due on Friday.



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