German GfK Consumer Climate Indicator Slides to -29.7 for February

Highlights

• German consumer confidence waned in January as inflation impacted income expectations.
• Willingness to spend indicators also flashed red, painting a grim picture of the German economy.
• Up Next, US personal income/spending and inflation warrant investor attention.

On Friday, the German economy was in focus early in the European session.

German GfK Consumer Climate Indicators Slide

On Friday, German consumer confidence was in the spotlight amidst expectations of a German recession through Q1 2024. The German GfK Consumer Climate Indicator declined from -25.4 to -29.7 for February. Economists forecast an increase to -24.5.

According to the January survey,

• Income expectations slid by 13.1 points to -20, the lowest since March 2023.
• The GfK attributed the fall in income expectations to the recent inflation trends. In December, the annual inflation rate accelerated from 3.2% to 3.7%, with the reintroduction of regular VAT contributing.
• Willingness to buy declined by 6 points to -14.8.
• High food and energy prices impacted consumer plans to purchase large items.
• In contrast, the willingness to save indicator rose by 6.7 points to 14 points, the highest since August 2008.
• Economic expectations for the next 12 months fell by 6.2 points to -6.6 points, the lowest since December 2022 (-10.3 points).

Impact on Sentiment Toward ECB Interest Rate Goals

On Thursday, the ECB left interest rates at 4.50%. During the ECB Press Conference, President Christine Lagarde focused on wage growth. Lagarde also warned that it was too early to discuss interest rate cuts.

The weaker consumer income expectations and slide in consumer willingness to buy painted a grim picture of the German economy. Similar trends across the euro area could force the ECB to rethink its stance on interest rates.

EUR/USD Reaction to German GfK Consumer Climate Survey

Before the German GfK Consumer Climate numbers, the EUR/USD rose to a high of $1.08488 before falling to a low of $1.08284.

However, in response to the numbers, the EUR/USD rose to a high of $1.08304 before falling to a low of $1.08265.

On Friday, the EUR/USD was down 0.16% to $1.08284.

Up Next

Later today, the US economic calendar will garner investor interest. US Core PCE Price Index and personal income/spending figures need consideration.

Economists forecast personal income to increase by 0.3% month-on-month in December and personal spending by 0.4%. Significantly, economists expect the Core PCE Price Index to increase by 3.00% year-over-year versus 3.20% in November.

Recent economic indicators have raised expectations of a US soft landing. However, investors remain divided on whether the Fed will cut interest rates in March.

According to the CME FedWatch Tool, the probability of a 25-basis point March rate cut increased from 40.4 to 51.0% on Thursday. Hotter-than-expected US inflation and personal income/spending numbers could reduce bets on a March rate cut.