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Summary: Q3 GDP for Europe's largest economy came in higher than expected. The German economy is now predicted to contract by 0.3% in 2023. The initial market reaction in the wake of the release of this data. German QoQ, YoY GDP figures Both the QoQ and YoY Q3 GDP for Europe's largest economy came in higher than expected, beating market expectations. The QoQ reading for German inflation in Q3 came in at 0.3%, beating the market forecast of 0.2%. Q3 YoY GDP, which was originally forecasted at 0.7%, came in at 1.1%. According to a prediction from the Ifo Institute in Munich, the German economy will decrease in 2023, primarily as a result of rising inflation eating away at private consumer spending. According to a statement released by the research firm on Monday, the biggest economy in Europe is now predicted to contract by 0.3% in 2023 rather than grow by an expected 1.6% in 2022. As energy suppliers raise prices to offset rising procurement costs brought on by decreasing Russian gas supplies, inflation is expected to increase to 9.3% in 2023, with the number peaking at about 11% in the first quarter in particular. Despite the GDP reading, which in theory should indicate bullish signals for the German economy, when compared to Ifo's previous prediction, the forecast is "much" lower. While inflation expectations were elevated by 6 percentage points, real GDP estimates were reduced by 4 percentage points. According to Ifo, the German economy will be primarily driven by manufacturing in the ensuing quarters as ongoing supply chain restrictions start to loosen as a result of slowing global growth. An increase in interest rates will also increase the cost of financing for enterprises in the construction industry, which will have an adverse effect on the sector as a whole. Initial market reaction The initial market reaction for the EUR/GBP currency pair saw the Euro weaken against the GBP, and the EUR/USD currency pair also weakened below parity, The DAX Index also dropped in the wake of the release of the GDP data. According to Ifo, the German economy won't "return to normal" until 2024, when growth will be 1.8% and inflation will be 2.5%. Ifo identified a number of risks to its prediction, including changes in energy prices, issues with the supply chain, and limitations on public life brought on by a projected rise in Covid-19 cases. Sources: investing.com

Only a small increase in unemployment in January shows that the labour market remains an important source of resilience in the economy Almost four million people in Germany work in the metal and electronics industry   German unemployment increased by 162,100 in January, increasing the number of unemployed to 2.616 million. The seasonally-adjusted unemployment rate, however, dropped to 5.3%, from 5.5% in December. Don’t be fooled by the increase in unemployment. This was still the second-best January performance of the German labour market since reunification, with a small caveat that the number of people working in furlough schemes has increased significantly over the last few months. Source of resilience The strong labour market was an important driver of the economy’s resilience last year. A combination of fiscal stimulus, furlough schemes and demographic change seems to have made the German labour market almost invincible. It, therefore, doesn’t come as a surprise that wage pressure has picked up. We expect wage growth of around 5% this year and 3% in 2024. Not included in these numbers are one-off payments that have become more popular in wage bargaining since the government announced it would exempt one-off payments of up to 3000 euros from taxes and social contributions to help alleviate the impact of rising inflation. Earlier this morning, however, the sharp drop in retail sales (-5.3% month-on-month in December) showed that even the solid labour market cannot prevent high inflation and uncertainty from denting private consumption. Read next: Samsung Demand For Semiconductors And Smartphones Remains Weak| FXMAG.COM Looking ahead, the lack of skilled workers remains a huge burden for the German economy. This has been driven not only by the end of lockdowns but also by structural trends like demographic change and it is a problem that is more likely to worsen than improve over the coming years. As a result, Germany will either witness additional wage pressure or a shrinking of the supply side as companies have to scale down production. The labour market has been an important driver of the economy's resilience over the last few years. In the coming years, the labour market will be another symbol of the structural transition that the entire economy will have to undergo. Read this article on THINK TagsLabour market Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The price of gold rebounded and recovered after yesterday's minor sell-off. It's trading at 1,901 at the time of writing and it seems determined to hit new highs if the Dollar Index drops deeper. You knew from yesterday's analysis that Gold announced a potential reversal. Today, the services and manufacturing figures should move the rate. The Eurozone, German, and UK data should bring action in the European session. Later, the US Flash Manufacturing PMI is expected at 48.9 points versus 49.0 points in the previous reporting period, while Flash Services PMI could be reported at 52.1 points in August and below 52.3 points in July. Furthermore, the US New Home Sales and the Canadian retail sales data could have an impact as well. Poor economic data should lift XAU/USD. In my opinion, only better-than-expected US data could force the price to drop again.   XAU/USD retested the ascending pitchfork's lower median line (LML) and now it has reached the 1,903 static resistance again. As long as it stays above the LML, Gold could extend its upwards movement. Still, only a valid breakout through 1,903 activates further growth. XAU/USD Outlook! A bullish closure above 1,903 could be seen as a buying signal as XAU/USD may approach and reach new highs.      

Eurozone, German Service PMI ease in December Euro snaps four-day rally The euro has snapped a four-day winning streak on Friday. In the European session, EUR/USD is trading at 1.0949, down 0.38%. The euro has enjoyed a strong week, with gains of 1.77%. Soft Eurozone, German services PMIs weigh on euro Eurozone Services PMI eased in December, indicating that the economy continues to struggle. The PMI fell from 48.7 to 48.1 and missed the consensus estimate of 49.0. This marked a fifth straight month of contraction in the services sector, with 50 separating contraction from expansion. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. Euro soars after ECB pause The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected, but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring 1.09% against the US dollar after the announcement. ECB President Christine Lagarde reaffirmed that the Bank would continue its “higher for longer” stance, saying that the Bank was not about to let down its guard and lower rates. Lagarde sounded hawkish even though the ECB lowered its inflation forecast at the meeting. Inflation has fallen to 2.4% in the eurozone, within striking distance of the 2% target. Lagarde acknowledged that inflation was easing but said that domestic inflation was “not budging”, largely due to wage growth.   There is a deep disconnect between the markets and the ECB with regard to rate policy. ECB President Lagarde poured cold water on expectations for rate cuts, arguing that inflation had not been beaten. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024 and are confident that Lagarde will have to change her stance, with inflation falling and the eurozone economy likely in recession. . EUR/USD Technical EUR/USD is testing support at 1.0957. Below, there is support at 1.0905 1.1044 and 1.1096 are the next resistance lines