DAX Starts the Year with Modest Gains – PMI and Employment Disappoint
The Eurozone’s largest economy shows the manufacturing sector remains in contraction. While the German statistics office said 2024 saw a sharp decline in employment growth.
- Manufacturing PMI for December came in at 42.5
- Employment grew by 72,000 jobs in 2024
- Focus is on possible Trump tariffs and ECB action
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The DAX rose 0.40% this morning as the stock market takes on the first trading day of 2025. Today’s push higher is the first after the DAX touched a new all-time high of 20,531 on December 13.
Manufacturing Activity Still in Contraction
HCOB Manufacturing PMI for December printed as per forecasts at 42.5. Down slightly from last month’s figure of 43, and still indicating contraction. The manufacturing sector remains in contraction, with a number below 50.
The last time this sector showed expansion, a number above 50, was in June 2022. The release was in line with expectations and the stock market showed little to no reaction to the number.
Employment Declines Sharply in 2024
The German statistics office published the number of employment growth for 2024, today. The economy still managed to add 72,000 jobs in 2024, but that number is a considerable decline from the past 2 years.
DAX Live Chart
In 2022 the German economy added 336,000 jobs and in 2023 622,000. The statistics office added that jobs growth started declining heavily in mid-2022, and that since reunification only the pandemic year of 2020 showed a contraction in employment.
The concern I see here is the rate of contraction in job growth. All other economic data is also indicating contraction, including of course, GDP Growth.
ECB Action Vs Trump Tariffs
The stock market is already pricing in the possibility of a hike in tariffs on EU goods and services once Trump is in office. Even if it’s only a 10% tariff, it still makes EU products less attractive.
The hope for the stock market comes from ECB policy through 2025. Reuters poll shows that the market see 100 basis points in cuts for this year.
The likelihood is high as inflation seems to be slowing to the 2% target of the central bank. Cheaper money will greatly help corporate profitability, especially ones with high debt loads.
But the high pace of cuts from the ECB and what seems like a Fed looking to take a slower rate of action will almost certainly depreciate the euro. The 10% hike in tariffs could easily be offset by a decrease of 10% in the EUR/USD.
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