Weekly house view | German relief
The week in review
The CDU/CSU conservatives won Germany’s election in a relief for markets, but they now face tough coalition talks. Smaller parties have a blocking minority that may make it difficult to push through reforms, including revisions to a constitutionally enshrined limit on public borrowing. The new government will take office at a time of upheaval in Europe, with President Trump openly criticising Ukraine’s president. However, recent data suggest the Eurozone is starting to slowly recover from its 2024 soft patch. The Euro Stoxx 600[i] rose 0.3% last week, outperforming US peers. In the US, deteriorating business and consumer morale weighed on the S&P 500[ii], which fell 1.6% for the week. The index suffered its biggest fall in two months on Friday, with investors also unnerved by Chinese researchers finding a new bat coronavirus capable of infecting humans. Benchmark 10-year Treasury yields fell to 4.42% and the dollar index lost 0.5%. Fed minutes confirmed Fed officials want to see “further progress” on inflation, or labour market weakness, before any new rate cuts. In China, equities rallied as President Xi held a meeting with the main tech entrepreneurs.
Quote of the week
“Tonight we will celebrate, and from tomorrow we start working … The world out there is not waiting for us”
– CDU leader Friedrich Merz, Feb. 23.
Key data
The S&P Global US services PMI fell to 49.7 in February from 52.9 in the prior month, indicating the first services contraction in over two years. The University of Michigan’s US consumer sentiment index dropped to 64.7 in February from January's revised reading of 71.7, hitting a 15-month low. In the UK, Q4 GDP grew by 0.1% quarter-on-quarter. UK wage growth rose to 5.9% in the final quarter of last year. Swedish unemployment rose to 9.7% in January, the highest ever recorded. In Japan, Q4 2024 GDP of 2.8% annualised was stronger than expected.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%; 2024, 25%.