Last week, the numbers from the Union were once again underwhelming. Purchasing Managers’ Indices signaled a mild recession in the manufacturing sector, while the minimal growth in the services sector suggested only barely measurable expansion.
France’s figures were highly negative, while Germany’s numbers suggested slight growth.
This brings us directly to this weekend’s elections, where economic growth will depend on the new government. On Sunday, the German people went to the polls, delivering a significant victory for the AfD. However, this outcome was largely in line with expectations, and no major surprises emerged.
Euro trading was very quiet on Sunday night, as usual, with no significant movement following news that aligned with expectations.
It is now up to the victorious CDU/CSU, led by conservative Merz, not only to form a government but also to initiate much-needed economic reforms in the country—a task that will have implications for both the Netherlands as a trading partner and Europe as a whole.
On the electoral front, it is noteworthy that both the FDP and BSW failed to meet the electoral threshold. As a result, the CDU/CSU will likely need to form a coalition with the SPD to secure enough seats. This outcome was largely in line with expectations, and with the narrow failure of smaller parties to enter parliament, the country is set to transition to a two-party coalition—a familiar scenario that brings a sense of stability for the euro.
Markets opened with a slightly higher EUR/USD, as Merz appears eager to hit the ground running.
Meanwhile, markets are bracing for the impact of new trade tariffs announced by Donald Trump, including a 25% tariff on steel. The concern is that in an already saturated Asian market, producers may redirect their products to Vietnam and neighboring countries, potentially driving prices down further.
On a positive note for dollar buyers, the so-called “Trump Trade” and its strong-dollar trend seem to be fading—or at the very least, the noise around it is subsiding. We’ve already seen markets giving the dollar some breathing room, suggesting that the worst of its surge may be behind us.
Meanwhile, Trump remains active on multiple fronts. Alongside ongoing talks to broker peace in Ukraine, Wall Street is beginning to acknowledge that his potential return could reshape the financial order in the coming years.
As for the dollar, it remains relatively strong—for now.
Trump’s potential influence on financial markets should not be underestimated. One particularly intriguing idea is his reported interest in restructuring U.S. debt. If he were to succeed, the impact on markets could be massive. Last week, Jim Bianco of Bianco Research discussed in a call with his associates the possibility of a so-called “Mar-A-Lago Agreement,” in which Trump could, for instance, push creditors to convert their treasuries into ultra-long-term debt. While purely theoretical, it’s not an entirely far-fetched scenario.
This week key events:
- Monday: From Europe, we get the Ifo Business Climate Index, where we hope to see confirmation of the cautious optimism from purchasing managers.
- Tuesday: New car registrations in Europe, with a particular focus on the impact of tariffs on Chinese (electric) cars and their effect on German car sales.
- Wednesday: GfK Consumer Confidence figures, which will provide insight into sentiment—though it’s worth noting these numbers were collected before the recent elections.
- Friday: A key day for Germany, with Retail Sales and Unemployment data set to be released.
Bottomline:
The spotlight this week is firmly on Germany.
From the United States, we kick off with a double dose of economic data, starting with the Chicago Fed’s activity index, followed by the Dallas Fed’s manufacturing report. Throughout the week, several Fed officials will be speaking, including Barkin and Logan on Tuesday, Bostic on Thursday, and Goolsbee on Friday.
On Wednesday, we’ll get key data on New Home Sales and mortgage trends. Then on Thursday, the second estimate of GDP growth will be released, along with Durable Goods Sales—a crucial indicator, as consumers often delay big purchases during uncertain times, making this a strong gauge of consumer confidence.
This week is packed with macro-economic data, political developments in Ukraine, rising tensions in Gaza, and the fallout from Germany’s election results—not to mention the likelihood that Donald Trump will make headlines again.
Plenty to keep an eye on.
For any questions, feel free to reach out.
overview macroeconomic calendar
Monday
- Germany: Ifo Business Climate
- US: Chicago Fed National Activity Index, Dallas Fed Manufacturing Index
Tuesday
- EU: New Car Registrations
- US: Fed Logan Speech, Fed Barkin Speech, CB Consumer Confidence
Wednesday
- Germany: GfK Consumer Confidence
- US: New Home Sales, Mortgage Data, Fed Bostic Speech
Thursday
- US: Q2 GDP Growth (2nd estimate), Durable Goods Orders
- EU: Economic Sentiment
Friday
- US: Fed Goolsbee Speech
- Germany: Retail Sales, Unemployment Change
