EUR Unmoved by Mixed IFO Report; German Business Confidence Mired by Trade Wars

EUR Analysis and Talking Points

German Business Confidence Mired by Slowing Growth and Trade Tensions
President Trump Threatens to Impose Tariffs on EU Autos

German Economic Outlook Deteriorates

The Euro and DAX saw a subdued reaction following a relatively mixed German IFO report. The business climate in Germany dropped to 101.8 in June from 102.3 as expected. However, the current assessment had fallen more than expected, having slipped to 105.1 from 106.1, while the expectations index had printed higher than forecast at 98.6 rather than 98. The IFO cited concerns over US trade war and weaker global economic growth as reasons for declining business confidence.

President Trump Ups the Trade War Ante

The backdrop of escalating trade tensions continues to plague investor sentiment. On Friday, President Trump threatened to impose a 20% tariff on all European cars coming into the US if trade barriers and tariffs on the US from EU are not ‘broken down and removed’. In response to this, European equities came under pressure, most notably German auto names. Additionally, Trump tweeted over the weekend that all countries should remove tariffs or be met with reciprocity by the US, as such, with the US showing no signs that it will back down, investor morale could continue to come under pressure over the forthcoming months.

Background on Trade Wars