Fra ABNamro:

Euro Macro: German ZEW down on fears for slower global growth and higher interest rates – Germany’s ZEW economic sentiment dropped in October, wiping away all the gains that were made during the two previous months.

The index, which measures the expectations of economists and analysts about economic conditions in Germany during the next six months declined from -10.6 to -24.7, which is the same level as in July and significantly lower than the long-term average value.

The details of the ZEW report suggest that the drop was driven by fears for slower growth in Germany’s major exports markets France, Italy, the UK and the US. The expectations for China and emerging markets are not measured separately but according the written statement by the ZEW institute worries about the trade conflict between China and the US as well as worries about a no-deal Brexit has depressed the ZEW index in October.

Germany’s Ifo business climate indicator improved in August and September, but the ZEW indicator signals that there could be a pull back again in business confidence in October. This raises the risk that the export-led soft patch in the German economy will continue.

Meanwhile, the details of the ZEW report show that expectations about short- and long-term interest rates in the US and Germany jumped higher in October. For instance more than 18% (increased from 10% in September) of all participants now expect short-term interest rates in Germany to rise during the next six months.

This would be earlier than current market expectations (September 2019) and our own (December 2019) expectation for the first ECB rate hike. So some of the weakness in the ZEW might be based on too gloomy assumptions about the speed of monetary policy normalisation. (Aline Schuiling)