GoldPrice.

The German ZEW showed mixed to negative data today with sentiment on economic outlook rising from -17.5 to -24.1, slightly above market expectations of -25. However, the reading for current economic conditions registered a large drop from 58.2 to 45.3, significantly below market expectations of 55. The economic sentiment survey read -21, up 1 point from the prior month’s reading of -22.

The ZEW data comes from a survey of approximately 300 German institutional investors and analysts which asks respondents for their 6-month economic outlook for Germany.

Key Takeaways

• Institutional investors have taken a surprisingly dim view of the current state of the German economy with a reading of 45.3 instead of the expected 55.
• The ZEW president stated that the assessment of the economic situation has “worsened dramatically” for both Germany and the Eurozone.
• The European Central Bank’s rates decision on Thursday will be closely watched to determine the seriousness of the situation.
• Further pressure is coming from within the Eurozone with a contentious demand from the EU that Italy reduce its deficit target.

The ECB rates decision and press conference will be studied all the more closely this Thursday following the surprising ZEW data with traders and economists looking to see if the European Central Bank’s new policy acknowledges what appears to be a significant economic weakness in the region.

Meanwhile the EU is demanding that Rome reduce the Italian deficit target from 2.4% or face sanctions. The Italian media reports that Italy could potentially reduce the deficit by 4 billion, half of what the EU is calling for.

Due to the protests and riots which have rocked Paris over the last month,  French President Emmanuel Macron has increased France’s budget deficit. The new measures will add approximately 8 - 10 billion to the French deficit, and it’s possibility that the Italian government will seek to be afforded similar treatment by the EU in light of this, either by increasing the Italian deficit target or increasing the deadline to achieve it.

Domestic developments and a likely move higher in oil keep us more cautious on INR for now though we remain medium term bullish. We stay bullish on EUR, with today's German ZEW survey potentially providing the catalyst for it to break higher.

— Renegade Capital (@CapitalRenegade) December 11, 2018

Expert Outlook

ZEW President Professor Achim Wambach said:

“Although the rise in economic expectations is a welcome one, it should not be over-interpreted. The assessment of the economic situation has worsened dramatically for both Germany and the Eurozone.

This is indicative of relatively weak economic growth in the fourth quarter. In addition, uncertainties also remain in terms of the looming international trade dispute and Brexit, which have a particularly negative impact on private investment and Germany’s exports.”

Market Reaction

A slightly weakened USD saw the EUR trading higher today with gains seen and held in spot gold as well. Spot gold is currently trading at $1,244.35/oz with a moderate 0.05% gain on the day which saw a high of $1,249.46/oz and a low of $1,241.80/oz.