Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 24/02/25
The German election outcome paves the way for a two-party Government and increased defense spending amid weak economic performance
Recent survey-based indicators have clouded somewhat the US economic outlook for Q1:2025. In the event, the Services PMI from S&P Global for February deteriorated by -3.2 pts mom to 49.7, well below expectations for a roughly stable reading.
Its manufacturing peer held its ground (+0.4 pts to 51.6), albeit a frontloading of activity ahead of higher tariffs, probably provided a temporary boost. President Trump continues to point towards increasing the existing rates of duties on imports from Mexico and Canada.
Τhe final print of the University of Michigan consumer survey for February, corroborated the findings of the preliminary results, which pointed to a deterioration of consumer confidence (-7.0 pts mom to 64.7, versus a 20-year average of 79.9), induced by inflation concerns, in turn related to tariffs.
Respondents’ inflation expectations in the 1-year ahead horizon surged to +4.3% from +3.3% in January. Importantly, 5-year ahead expectations rose to +3.5% (revised up from +3.3% in the preliminary reading), after tightly hovering close to 3% in the past 3½ years.
Geopolitical considerations have also taken center-stage, with the US revisiting its stance on the Ukraine matter. Respective diplomatic mobility has picked up pace.
Recent developments suggest that the prospect of increased spending on defense from European countries, has strengthened. Deliberations regarding a potential activation of the 'general escape clause' within the Stability and Growth Pact of the EU have commenced for defense expenditures (EU countries cumulative defense spending of €325 billion or 1.8% of EU GDP in 2024).
In Germany, negotiations for the formation of a coalition government have started following the general elections. The results were roughly expected, with the CDU/CSU drawing 28.5% of votes, the AfD 20.8%, the SPD 16.4%, the Greens 11.6% and the Die Linke 8.8%.
Germany’s likely incumbent Chancellor Merz (leader of the CDU/CSU) has started discussions with the Social Democrats (SPD) for coalescing. Reportedly, Merz has proposed up to €200 billion (4.7% of Germany’s GDP) in “special” defense spending, albeit implementation details are premature to call (estimated Germany’s military spending in 2024: 2.1% of GDP). The UK also seeks to lift defense spending to 2.5% of GDP by 2027 from an estimated 2.3% in 2024, according to PM Starmer.
US equity markets have taken a breather in recent sessions (S&P500: -2.6% since February 19th | +1.7% year-to-date), in view of some concerns regarding the economic and Technological (sector-wise) outlook. Attention during the current week turns to heavyweight and AI-bellwether Nvidia, due to report on Wednesday February 26th (EPS estimates of $0.84 from $0.52 one year ago).
European bourses were little changed (Stoxx600: +0.3% wow), with the prospective increased military spending (part of which to be directed towards Europe-based industries) boosting stock prices of firms involved in the defense industry (e.g. SAAB: +21.4% wow, Thales: +10.2% wow, Leonardo: +11.0% wow, Kongsberg Gruppen: +16.2% wow, Rheinmetal: +9.4% wow). The EUR has appreciated by +0.7% against the US dollar to EUR/USD 1.047 month-to-date, slightly up post German elections.
Recent survey-based indicators have clouded somewhat the US economic outlook for Q1:2025. In the event, the Services PMI from S&P Global for February deteriorated by -3.2 pts mom to 49.7, well below expectations for a roughly stable reading.
Its manufacturing peer held its ground (+0.4 pts to 51.6), albeit a frontloading of activity ahead of higher tariffs, probably provided a temporary boost. President Trump continues to point towards increasing the existing rates of duties on imports from Mexico and Canada.
Τhe final print of the University of Michigan consumer survey for February, corroborated the findings of the preliminary results, which pointed to a deterioration of consumer confidence (-7.0 pts mom to 64.7, versus a 20-year average of 79.9), induced by inflation concerns, in turn related to tariffs.
Respondents’ inflation expectations in the 1-year ahead horizon surged to +4.3% from +3.3% in January. Importantly, 5-year ahead expectations rose to +3.5% (revised up from +3.3% in the preliminary reading), after tightly hovering close to 3% in the past 3½ years.
Geopolitical considerations have also taken center-stage, with the US revisiting its stance on the Ukraine matter. Respective diplomatic mobility has picked up pace.
Recent developments suggest that the prospect of increased spending on defense from European countries, has strengthened. Deliberations regarding a potential activation of the 'general escape clause' within the Stability and Growth Pact of the EU have commenced for defense expenditures (EU countries cumulative defense spending of €325 billion or 1.8% of EU GDP in 2024).
In Germany, negotiations for the formation of a coalition government have started following the general elections. The results were roughly expected, with the CDU/CSU drawing 28.5% of votes, the AfD 20.8%, the SPD 16.4%, the Greens 11.6% and the Die Linke 8.8%.
Germany’s likely incumbent Chancellor Merz (leader of the CDU/CSU) has started discussions with the Social Democrats (SPD) for coalescing. Reportedly, Merz has proposed up to €200 billion (4.7% of Germany’s GDP) in “special” defense spending, albeit implementation details are premature to call (estimated Germany’s military spending in 2024: 2.1% of GDP). The UK also seeks to lift defense spending to 2.5% of GDP by 2027 from an estimated 2.3% in 2024, according to PM Starmer.
US equity markets have taken a breather in recent sessions (S&P500: -2.6% since February 19th | +1.7% year-to-date), in view of some concerns regarding the economic and Technological (sector-wise) outlook. Attention during the current week turns to heavyweight and AI-bellwether Nvidia, due to report on Wednesday February 26th (EPS estimates of $0.84 from $0.52 one year ago).
European bourses were little changed (Stoxx600: +0.3% wow), with the prospective increased military spending (part of which to be directed towards Europe-based industries) boosting stock prices of firms involved in the defense industry (e.g. SAAB: +21.4% wow, Thales: +10.2% wow, Leonardo: +11.0% wow, Kongsberg Gruppen: +16.2% wow, Rheinmetal: +9.4% wow). The EUR has appreciated by +0.7% against the US dollar to EUR/USD 1.047 month-to-date, slightly up post German elections.
