The German economy in September 2016 – on the edge

By: netwalkerz_net
By: netwalkerz_net

The question raised at the end of August („seasonal slowdown or new trend?„) might indeed be answered in the very near future – at least, if Deutsche Bank‘ shares contiue to plunge. But I am getting ahead of myself…

First, the hard facts: German exports in July 2016 plunged by 10%! Although there seem to be several explanations, a certain aftertaste remains. However, otherwise, German economy seems to remain robust: German unemployment in Septemberf 2016 fell from 6.1% to 5.9% (MoM). The German inflation-rate rose to 0.7% compared to a rise of only 0.4% in the previous month. Given this positive development, the leading German economic research institutes have revised their common prognosis for GDP growth in 2016 from 1.6% to 1.9%

Meanwhile the leading German business climate indices – again – remained indecisive, while switching positions: The IFO-Business-Climate Index rose from 106.3 points (seasonally-adjusted) in August to 109.5 points in September 2016, reaching its highest level since May 2014. According to IFO, „The German economy is expecting a golden autumn.“ Well, well, let’s keep our fingers crossed that this is not over-optimistic. While the ZEW Indicator for the current situation in September 2016 has lost 2.5 points from 57.6 in August to 55.1 now, the outlook remains unchanged. Hence, both indices have switched positions more or less in comparison to the previous month.

However, all these niceties might come to an abrupt end very soon. For there has been a definitve turn to the worst in European banking – the crisis hit home, so to say: As explained elsewhere in more detail, a first sign for a potential crash already occured on 9 September 2016, when (longterm) Bunds „suddenly“ posted a positive return, while shares plunged. Reasons for this movement were that the ECB in its monthly meeting did not see any grounds for extending the existing QE and the FED-board-member Rosenberg who sparked fears of a rate-hike (which did not come in the end).

And then the US-DOJ took the helm and steered Deutsche Bank into a crisis of historic proportions. With a first „offer“ to settle proceedings regarding the collateralisation of commercial real estate mortgages in the run-up to the last financial crisis amounting to USD 14m, all hell broke loose. After digesting the news for a few days, Deutsche’s shares plunged – 7.49% on 26 September alone. Then, suddenly on 27 September, after crashing a further 3.xx% – when I thougt that the bank would be toast within the hour – Deutsche’s shares miraculously rose! And they – again miraculously – did not stop to rise until a few minutes before the end of the trade, where they reached 10.55 Euro/share. Exactly the amount on which the trade ended the day before! What a miracle! Or, rather the stepping in of some kind of „Plunge Protection Team„…. Well, and then this morning, 30 September 2016, Deutsche crashed again, -9% in the peak, down to 9.92 Euro/share. Meanwhile, in the shadow of Deutsche, Commerzbank announced that it will axe 9,600 jobs, a fifth of its total workforce. Normally a sure bet for a rising share price. Not anymore. Commerzbank shares fell below 6 Euro/share, and is currently even below 5.50 Euro/share.

And, to make matters worse, it is not only the banking sector that is hit. With a certain delay, the retail-crisis which has already hit the US (Sears, KMART) and the UK (BHS, Austin Reed) is now homing in on Germany. Within the last weeks, several retailers filed for insolvency, among them Strauss Innovation, Wöhrl, SinnLeffers, to name but a few. Also, the sale of famous fashion-company Strenesse out of insolvency spectacularly failed.

Meanwhile, the food-retail-chain „Kaiser’s Tengelmann“ will go down the drain either way: After a court blocked the merger with rival Edeka, the company seems to bleed money – and is said now to be split between Edeka and Rewe, another rival. If the split does not happen, the company will probably go bust. In any case, at least 8,000 jobs are at stake.

But this is not all: the famous German airline „Air Berlin“ is said to be cut by and in half, some of the planes, workforce and slots going to rivals such as Lufhansa. Also, with KTG-Agrar, another „mini-bond“ issuer went bankrupt. To add humiliation to failure, Volkswagen-group is getting deeper in its mess – with new revalations of who-knew-what-when every other day. It is going so far that the DOJ is now assessing the size of a penalty „without putting the company out of business.

Given these bad news from banking, retail and other industries, the German ecomomy is now on the edge of a crash – even without taking into consideration the consequences if the US economy is already in a recession or not, of the aftermath of the Hanjin-failure or of the fate of the infamous Italian bank Monte dei Paschi. The next month will be crucial for whether the German economy can escape the crash (though to my mind that would need – yes, again – a miracle (maybe in the unlikely „form“ of Mr. Draghi?)).

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