Germany’s economy shrank over the full year 2023 but managed to avoid slipping into its second recession within a year. Despite the gloomy economic data out of Europe’s largest economy, market participants were mostly fixated on comments coming from policymakers attending this year’s World Economic Forum in Davos this week. Investors’ hopes for quick interest rate cuts were countered by policymakers in the Swiss village, putting stocks under pressure. Trading nevertheless remained muted to start the week with stock markets in the US closed for the Martin Luther King Jr. Day public holiday on Monday.
Germany’s gross domestic product (GDP) shrank by 0.3% over the full year of 2023, highlighting the struggle to return to growth since the corona pandemic for Europe’s largest economy. In the last quarter, GDP fell by 0.3% after stagnating in the third quarter, according to a preliminary estimate by the Federal Statistical Office. Germany is facing multiple crises that are dampening economic growth, such as high energy prices in the wake of Russia’s invasion of Ukraine, low demand for German exports largely due to a slow economic reopening in China and record high interest rates in the eurozone. Germany was last in recession in late 2022 and early 2023. Germany’s DAX closed 0.5% lower on Monday.
Other European stock markets were also in the red to start the week with impulses from the US lacking due to the public holiday. The Euro Stoxx 50 lost 0.6% on Monday, France’s CAC 40 dropped 0.7% and Switzerland’s SMI slipped 0.2%. US stock futures were down and the Dollar Index strengthened ahead of the reopening of US markets on Tuesday.
While US markets were closed, the contest for the Republican presidential nomination kicked off on Monday in the state of Iowa with Republicans there choosing former president Donald Trump as their candidate for the presidential elections this autumn. Despite a series of open legal issues, Trump won by the largest margin ever in the Iowa Republican contest, a first step towards securing the Republican nomination for the presidential election.
Losses for stocks continued in the Asia-Pacific region on Tuesday. Hong Kong's Hang Seng Index led losses, trading down 2.4%, while the mainland’s Shanghai Composite was 0.4% lower. In Tokyo, the Nikkei 225 ended the session 0.7% lower after the Corporate Goods Price Index came in slightly higher than expected for December at 0.3% growth on the month. The pullback halted a rally that had led Japan’s key stock index to levels last breached in 1990. In South Korea, the Kospi lost 1.1% and Australia’s S&P/ASX 200 also finished the session down 1.1%.
Oil prices dropped more than 1% to start the week. The drop comes despite Qatar suspending liquefied natural gas shipments through the Red Sea due to military activity in the region. Disruptions in the strategically important waterway could cause energy prices to rise, but both Brent and WTI were both lower on Monday, trading around USD 78 and USD 72, respectively.
Corporate news in focus: Q4 figures from Goldman Sachs.
Economic data in focus: The World Economic Forum continues in Davos, UK unemployment rate, German Harmonised Index of Consumer Prices, EU Ecofin meeting, Italian Consumer Price Index, Germany’s ZEW Indicator of Economic Sentiment, Canadian Consumer Price Index, Empire State Manufacturing Survey.
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.