Financial Market Research and Analysis

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Europe’s growth engine is sputtering

Germany woke up to a grey sky this morning. Its exports slumped by a significant 5.2% in month of August.  The slowdown in China, which stands for 10% of German exports, is dangerously creeping in. Rising euro is also pulling away some support from German products in terms of price competitively. At a time when German companies are also suffering from reputational risk following the Volkswagen scandal.

European investors are talking about Deutsche Bank expecting EUR 5.8 billion write down in its investment bank division and predicting EUR 6.2 billion worth of loss in Q3. Bank’s board recommended a cut or even a possible elimination of dividend for FY2015. Despite unpleasant news, Deutsche bank stocks opened only 3% lower and quickly reversed early losses, shareholders seem comfortable receiving fewer dividends in exchange of a more adequate capital buffer.

It is sad to say but Europe’s most powerful economy is going sour. Negative pressures in German stocks are here to stay and the murk could well spill over the entire European markets. Capital is flowing into Eurozone sovereign bonds this morning as euro keeps on climbing. It looks like Draghi will be given no option other than to react. And even Bundesbank will likely be less of an opposition.

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