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German Sentiment Shows Divergent Signals

David Becker
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Sentiment in German seems to be waffling between strong and weak readings and two were released Friday, which gave divergent signal. The IFO was reported weaker than expected for July, following the Gfk confidence reading which showed an uptick in July.

The German Ifo slumped to 108.0 in July from 109.7 in June. This was the third consecutive decline and a much weaker than expected number, which stands in stark contrast to the stronger than expected German PMI readings Thursday. The breakdown showed a slump in the expectations number to 103.4 from 104.8 and a drop in the current conditions indicator to 112.9. The diffusion index, showed waning confidence across all sectors. The Bundesbank already warned that growth dynamics in the second half of the year will be weaker than in the strong first quarter.

The German GfK consumer confidence climbed to 9.0 from 8.9 in July. The unexpected uptick lifted the reading to the highest since 2006. The full breakdown, showed improvements in the personal income situation and surprisingly a marginally less negative reading for the willingness to safe, despite the ECB’s latest round of rate cuts. Price expectations also turned less negative, but the assessment of the economic outlook declined, as did the willingness to spend.

When investor see divergence economic signals that are expected to reflect the same part of the economy, it is hard to pay attention to either. The German economy is growing at a modest pace so at best the sentiment in the country should be modest.

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