News Summary:
- Germany’s GfK Consumer Confidence Index rose slightly to -21.3 for January, but high inflation and job concerns persist.
- Germany’s DAX fell 0.9%, mirroring European market losses, driven by hawkish US Fed signals and inflation fears.
- Fed raised 2025 inflation forecast to 2.5%, signaling cautious monetary policy, adding to global economic uncertainty.
Germany’s GfK Consumer Confidence Index rose slightly for January, but sentiment remains weak amid high inflation and job concerns. The index increased by 1.8 points to -21.3, recovering from December’s -23.1, the lowest since May. While the figure surpassed expectations of -22.5, it remains significantly below pre-pandemic levels, highlighting persistent fragility in consumer sentiment.
The modest improvement was driven by rising income expectations, which climbed by 4.9 points to 1.4, reversing a sharp drop in November. Willingness to buy edged up by 0.6 points to -5.4, though still subdued, while willingness to save fell by six points to 5.9, reflecting reduced consumer caution.
Economic expectations remained stagnant, with the indicator at 0.3, only slightly above December’s -3.6. “A sustained recovery in consumer sentiment is not yet in sight,” cautioned Rolf Bürkl, a consumer expert at the Nürnberg Institute for Market Decisions. High food and energy prices, combined with growing job insecurity, continue to weigh on consumers. Analysts expect near-stagnant growth for 2025 following a slight contraction in 2024, according to forecasts from the ifo Institute.
DAX Declines as European Markets React to Fed Signals
Germany’s DAX index fell 0.9% to around 20,000 points, marking its fifth consecutive session of losses. Infineon AG led the declines with a 3.5% drop, followed by Vonovia AG (-2.4%) and Continental AG (-2%). However, MTU Aero Engines AG and Rheinmetall AG each gained 0.8%.
European markets mirrored the DAX’s losses, pressured by hawkish signals from the US Federal Reserve. The Euro STOXX 50 dropped 1.1%, while France’s CAC 40 fell 1.2%, Italy’s FTSE MIB declined 1.3%, and Spain’s IBEX 35 slid 1.6%. Dutch semiconductor giant ASML Holding saw the steepest loss, tumbling 3.9%, while Banco Santander and Vivendi also declined sharply.
Fed Signals Caution for 2025 Policy
The Fed’s widely expected 25-basis-point rate cut came with raised inflation projections for 2025, now forecast at 2.5%, up from 2.1%. Chair Jerome Powell emphasized a “new phase” of monetary policy as rates approach neutral territory, with only two cuts now anticipated in 2025, down from September’s projection of four.
Economists expressed caution about the Fed’s trajectory. Rogier Quaedvlieg of ABN Amro stated that while a January pause seems certain, the outlook beyond remains uncertain. ING Group’s Chris Turner highlighted the impact of sticky inflation and Trump’s policies, which raise the threshold for further cuts.
The Fed’s cautious stance has reignited fears over restrictive monetary policy, compounding investor concerns in Europe. European equities are already grappling with sluggish growth and potential Trump-related tariffs, adding to market uncertainty.