The Eurozone received some unwelcome news this morning, as the latest economic sentiment reading for Germany (the leading economy in the Eurozone) came in much lower than was expected. The ZEW economic survey is generally seen as measure of the overall feeling that investors will have of the economy – it is worth noting that for now, the overall feeling still remains positive.
Although this has not had an immediate negative effect on the German economy, worrying signs still remain. The recent state of uncertainty surrounding the German government and in particular how this could affect the EU’s bargaining power in Brexit and the EU reforms scheduled are of concerns to experts on the financial markets. As economic growth largely relies on investment, German Gross Domestic Product (GDP) is also likely to take a hit in this month’s reading, which is likely to have a negative effect on the Euro.
Meeting of the 27 EU leaders this week
It’s another important week for Brexit negotiations this week, as the EU 27 will meet at the EU Summit on Thursday and Friday to discuss, amongst other things, whether the UK’s recent proposal of €39bn is enough to progress to the second round of talks, which covers the all-important subject of trade agreements.
Talks are expected to start Thursday afternoon, however European Commission President Jean-Claude Juncker and European Council President Donald Tusk are expected to meet Wednesday in order to make sure everything is in order before Friday’s Economic Summit in Brussels. I would expect to see a large amount of volatility on Pound to Euro exchange rates this week, with a range of 1.13 – 1.15 being predicted. The only significant data release this week will be Purchasers Managers Index (PMI) data for the Eurozone on Thursday morning, however I expect the headlines to be dominated by Brexit news this week.