German shares concluded the trading week on a positive note as recent data indicated a deceleration in the growth of consumer prices within Europe's leading economy during September. This downturn in inflation terms has fostered dovish sentiments leading up to the upcoming European Central Bank (ECB) monetary policy meeting next week. By the close of trading on Friday, Germany's DAX index experienced a notable gain, climbing by 0.85%.
Among the notable stocks was Siemens Energy, a prominent player in energy technology, which saw an impressive rise of 3.29%. Conversely, the automotive and defense manufacturer Rheinmetall faced a decline of 1.56%. According to data released by Germany's Federal Statistical Office, the annual inflation rate for the country fell to 1.6% in September, down from the previous month's rate of 1.9%.
This decline signals a noteworthy shift in the economic landscape. Ruth Brand, the President of Destatis, provided insights on the situation, stating, "In particular, further reductions in energy prices slowed inflation more significantly in September 2024 than in the previous months. On the other hand, price increases for services, which are still above average, drove inflation up." These recent figures have emerged just before the ECB's meeting scheduled for October 17.
Financial analysts and market participants generally anticipate that policymakers will seek to further decrease the deposit rate from 3.5% to 3.25%. This anticipated move is seen as a response to the economic indicators and the changing inflation dynamics. Danske Bank commented on the broader implications, stating, "We see the good inflation news as welcome information for the ECB, albeit the weakness observed on the activity side may be viewed with some concern.
If the near-term growth weakness extends into the months to come, and thus downside risks to growth materialize with domestic demand not picking up, we may consider a frontloading of the rate cuts next year - and potentially add a degree of 'insurance cuts', i.e., cutting the deposit rate below 2%." Additionally, the current account data presents a mixed picture.
Germany reported a current account surplus of 14.4 billion euros in August, although this was a decrease of 3.3 billion euros from the prior month, largely attributed to a lower surplus in the trade of goods as per Deutsche Bundesbank's assessments..