Germany’s Industrial Setback in April Raises Fears of Prolonged Stagnation

Economic

Summary:

Germany’s industrial production fell 1.4% and exports dropped 1.7% in April 2025, dampening expectations of a rebound in Europe’s largest economy...

Weakened Industrial Activity Offsets Early-Year Momentum

After a stronger-than-expected first quarter, Germany’s economy stumbled in April with both industrial output and exports declining more sharply than forecast. A 1.4% monthly drop in production and a 1.7% fall in exports suggest the momentum from frontloading ahead of U.S. tariff hikes may have run its course. The decline in exports, a critical driver of the German economy, highlights its vulnerability amid rising trade frictions and slowing global activity.

This setback contradicts the positive signal from factory orders earlier in the week, which had shown unexpected growth, largely driven by increased demand for technology-related products such as electronics and optical devices. Nonetheless, the latest production data reflect a broader downturn in industrial sectors, with weakness cutting across various manufacturing categories.

Tariff Risks and Structural Headwinds Weigh Heavily

The underlying fragility of Germany’s industrial sector is exacerbated by concerns over potential U.S. tariffs under President Trump’s trade agenda. The risk of further levies, particularly on autos and machinery, compounds the pressure on a sector already grappling with high energy costs, bureaucratic inefficiencies, and labor force aging. Chancellor Friedrich Merz, who assumed office in early May, faces immediate macroeconomic challenges that may constrain his reform agenda.

The downturn also places a spotlight on Germany’s structural issues, including regulatory rigidity and underinvestment in digital infrastructure. Despite a recently approved €46 billion tax relief package intended to boost business investment, economic sentiment remains tepid, with analysts warning of stagnation or even contraction for the third consecutive year.

Mixed Outlook Amid Policy Support and ECB Tailwinds

Commerzbank Chief Economist Joerg Krämer remains cautiously optimistic, citing strong incoming orders as a leading indicator of future recovery. He believes the industrial decline is likely temporary and that support from the European Central Bank’s interest rate cuts and Germany’s fiscal stimulus will gradually lift the economy. However, Bloomberg Economics counters that recent gains in business sentiment have been modest and that output weakness will likely persist, resulting in economic stagnation through the summer months.

Bundesbank President Joachim Nagel has also acknowledged the artificial lift in Q1 data due to inventory and trade timing effects, stating that the remainder of the year will likely reflect a more subdued trajectory aligned with international trade headwinds.

France Also Shows Signs of Softness

Germany’s decline is mirrored in neighboring France, where industrial production also fell 1.4% in April. While a dip in energy output from mild weather partially explains the decline, the 0.6% contraction in manufacturing activity reveals broader weaknesses. France’s trade balance also deteriorated slightly, with exports slipping from €50.5 billion in March to €50.4 billion in April.

Germany’s April industrial data mark a sobering inflection point, showing that early-year optimism may have been overstated. With U.S. tariffs looming, Chinese demand uncertain, and domestic reforms still in early stages, the path to recovery remains fraught. While fiscal stimulus and interest rate cuts offer some cushion, sustained improvement will depend on global trade dynamics, geopolitical clarity, and domestic structural reforms. The risk of a third year of zero or negative growth is increasingly real.

Source: Bloomberg

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Stocks

Investor Confidence Returns After Trade War Fears Subside

Following months of geopolitical uncertainty, foreign investors returned en masse to Asian equities in May 2025, pouring in approximately $10.65 billion—the highest monthly inflow since February 2024. This surge was triggered by a temporary 90-day pause on U.S. reciprocal tariffs announced in late April, which significantly eased fears over an immediate shock to Asian exports and supply chains. The capital reversal comes after four consecutive months of outflows that reflected intense risk aversion linked to the U.S.-China trade conflict.

The pause in tariff escalation created a short-term window of clarity, allowing institutional investors to reassess valuations and macroeconomic fundamentals across the Asia-Pacific region. Renewed optimism was further supported by robust Q1 corporate earnings in several economies and by strategic long-term themes such as AI supply chain exposure, particularly in Taiwan and South Korea.

Taiwan and India Lead the Inflow Charge

Among regional markets, Taiwan emerged as the primary beneficiary, with foreign investors purchasing $7.28 billion in equities—its largest monthly inflow since November 2023. This was largely driven by expectations of sustained demand in AI semiconductors, where Taiwan’s chipmakers are globally dominant. Meanwhile, Indian equities attracted $2.34 billion, their highest since September 2024, buoyed by resilient GDP growth and a continued disinflationary trend that gives the Reserve Bank of India space for monetary easing, as seen in its recent 50-basis-point rate cut.

South Korea also benefited from foreign optimism, with net inflows of $885 million. Indonesia and the Philippines drew $338 million and $290 million, respectively, reflecting increased appetite for Southeast Asian growth stories. Thailand was the only outlier, suffering $491 million in net foreign outflows amid persistent political uncertainty and slower-than-expected recovery in domestic consumption.

Earnings Forecast Upgrade and Macro Tailwinds

Goldman Sachs raised its earnings growth forecast for the MSCI Asia Pacific ex-Japan index (MXAPJ) to 9% for both 2025 and 2026, attributing the upgrade to stronger-than-expected macroeconomic performance in China and other U.S.-linked Asian economies. A major boost has also come from the $600 billion wave of AI-related capital investment—ranging from Saudi sovereign wealth funds to Silicon Valley tech giants—which is expected to benefit hardware manufacturers and data infrastructure hubs in Asia.

Nevertheless, the tailwinds are not without caveats. A weakening U.S. dollar may dampen some of the region's export competitiveness, and further escalation in U.S.-China tensions—especially around semiconductors and rare earth exports—could quickly reverse these gains.

Outperformance Highlights Resilience Despite Tariff Risks

Despite a turbulent start to the year marked by elevated volatility, the MSCI Asia Pacific Index has gained 8.8% year-to-date, outperforming the MSCI World Index (5.4%) and the S&P 500 (0.98%). This relative strength underscores the market's belief in the region’s structural growth potential, driven by both technology leadership and demographic dividends.

With the next round of U.S.-China trade negotiations underway, and key macro data from China and India due in the coming weeks, investor positioning remains sensitive to geopolitical signals. However, for now, Asia appears to be regaining its footing as a preferred investment destination for global equity flows.

Source: Reuters

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Forex

Interest Rate Dynamics Favor a Stronger Yen

According to Mitsuhiro Furusawa, a respected former top FX diplomat and former IMF deputy managing director, the yen is poised to appreciate against the U.S. dollar toward the 135–140 range by the end of 2025. The driving factor is not political pressure from Washington to weaken the dollar, but a gradual narrowing of the interest rate differential between the Federal Reserve and the Bank of Japan. While markets have speculated about Trump’s potential desire to pursue a weaker dollar for export advantage, Furusawa believes the U.S. president is more committed to using tariffs than manipulating currencies to achieve trade goals.

BOJ Policy Shift Could Support Yen

The Bank of Japan, having exited its ultra-loose policy stance earlier this year, is considering further rate hikes contingent on inflation reaching its 2% target. BOJ Governor Kazuo Ueda has hinted at additional tightening in the latter half of 2025 if positive developments occur—such as a reduction in tariff-induced uncertainty or a successful trade agreement at the upcoming G7 summit. Meanwhile, the Federal Reserve is widely expected to cut rates by the end of the year due to economic headwinds. This divergence in policy trajectories is likely to support a gradual yen appreciation.

Furusawa believes the BOJ may ultimately aim for a policy rate above 1%, though acknowledges significant uncertainty regarding the pace and feasibility of such normalization.

Trade Negotiations and Diplomatic Signals

Ongoing trade talks between Japan and the United States—focused on automobile tariffs—could also shape currency dynamics. The G7 summit on June 15–16 is viewed as a critical milestone. A successful agreement could enhance market confidence, boost real wages, and reinforce domestic consumption, supporting the case for a BOJ rate hike.

Finance Minister Katsunobu Kato's recent comments about Japan's U.S. Treasury holdings being a potential negotiating tool briefly rattled markets. Furusawa, however, warns that any real threat to offload Treasuries could backfire by provoking Washington and derailing bilateral talks.

Yen Strength in Sight, But Political Risks Linger

With the yen trading near 144 to the dollar in early June, Furusawa’s forecast of a move to 135–140 implies a potential 3–6% appreciation over the next six months. While markets will watch for signs of intervention or political posturing from the Trump administration, the core driver remains the rate policy outlook.

If the BOJ resumes tightening while the Fed pivots to easing, and if Japan secures trade certainty, the yen's strengthening appears not only plausible but likely. However, geopolitical volatility—especially surrounding rare earths, semiconductors, and U.S. election politics—could still disrupt that path.

Source: Reuters

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China–U.S. Trade War

Renewed Dialogue Amid Escalating Tariff Tensions

In a high-stakes conversation on Thursday, U.S. President Donald Trump and Chinese President Xi Jinping agreed to restart stalled trade negotiations between their two nations. The discussion, which lasted approximately 90 minutes, was characterized by Trump as “very good” and focused almost entirely on trade issues. The renewed talks aim to address the ongoing tariff standoff that has increasingly strained economic relations between Washington and Beijing.

Following the call, Trump announced that Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and U.S. Trade Representative Jamieson Greer will represent the United States in the forthcoming meetings. The location and date of the talks are yet to be determined.

Rare Earths and Export Restrictions Remain Flashpoints

One of the most contentious issues involves China’s pledge—originally made during the May Geneva meetings—to increase exports of rare earth minerals to the U.S., a promise Washington accuses Beijing of delaying. Trump cryptically stated that “there should no longer be any questions respecting the complexity of Rare Earth products,” without offering further clarification.

In parallel, U.S. export controls targeting Chinese semiconductors and broader restrictions on technology transfer have further soured relations. These measures, justified by the White House as necessary for national security, are viewed by China as punitive trade barriers.

Adding to the friction, China has condemned the U.S. decision to restrict student visas for Chinese nationals and criticized Washington’s recent industry advisory warning against Chinese-made semiconductors.

Diplomatic Courtesies and Strategic Calculations

Despite the economic headwinds, both leaders emphasized diplomatic gestures. Xi extended an invitation for President Trump and First Lady Melania Trump to visit China, which Trump said he accepted. Notably, the leaders did not discuss geopolitical hot spots such as Russia, Ukraine, or Iran—suggesting a deliberate effort to keep the focus on trade.

With trade between the two countries reaching nearly $600 billion in 2024, the stakes remain high. The fragile state of their economic relationship has also complicated Trump’s broader tariff regime, which is under increasing scrutiny both domestically and abroad due to its inflationary and investment-dampening effects.

Talks Offer Hope, But Substantial Barriers Persist

While the call represents a constructive step forward, tangible outcomes from future trade meetings remain uncertain. The U.S. remains wary of China’s fulfillment of past promises, particularly in critical sectors like rare earths and technology, while China remains deeply frustrated with Washington’s regulatory posture and aggressive protectionist measures.

Markets responded with volatility to the news of the call, underscoring the unpredictability that continues to define U.S.–China trade diplomacy. With upcoming talks on the horizon, the next few weeks could determine whether the world’s two largest economies can de-escalate tensions—or plunge deeper into a protracted trade conflict.

Source: CNBC

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Economic

SNB Pushes Back Against U.S. Watch List Allegations

On Friday, the Swiss National Bank issued a direct response to the U.S. Treasury’s latest report, which added Switzerland to a group of countries under scrutiny for potentially manipulating their exchange rates. The SNB maintained that it “does not engage in any manipulation of the Swiss franc” and emphasized that its monetary actions are purely aimed at maintaining price stability within Switzerland.

This marks another chapter in the ongoing tension between smaller economies with strong currencies and larger economies like the U.S. that view persistent trade surpluses or foreign exchange interventions with suspicion. According to the SNB, its actions in the foreign exchange market are neither aimed at preventing legitimate balance of trade adjustments nor at artificially enhancing Switzerland’s export competitiveness.

Monetary Policy Justification: Stability Over Advantage

The SNB reaffirmed its inflation control objective, which targets a price stability band of 0–2% annually. This policy stance, according to the bank, justifies the occasional need for foreign exchange interventions and interest rate decisions in order to curb excessive currency appreciation that could threaten domestic deflation or economic stagnation.

It is worth noting that Switzerland, with its safe-haven status, often sees surges in franc demand during global economic turbulence. As a result, the SNB occasionally intervenes to soften extreme currency inflows that could jeopardize its inflation and growth outlook.

The central bank refrained from disclosing whether it plans additional discussions with U.S. authorities but stated it remains in contact to clarify the rationale behind its policy moves.

FX Transparency Versus Sovereign Autonomy

The U.S. Treasury’s watch list does not carry direct punitive measures but does impose reputational costs and encourages increased scrutiny of listed nations. Alongside Switzerland, other countries added include Japan, China, Germany, South Korea, and Vietnam.

For Switzerland, this situation raises the broader dilemma faced by many export-reliant economies balancing external political pressure with internal macroeconomic needs. The SNB’s statement signals its intent to uphold sovereign monetary independence while maintaining transparency and communication with international counterparts.

As the global trade environment becomes more fragmented amid tariff disputes and currency realignments, central banks like the SNB may find themselves defending non-traditional policies more frequently—even when they are rooted in domestic stability goals.

Source: Reuters

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Economic

Key Points:

●US tariffs triggered a 1.7% drop in German exports and a 1.4% fall in industrial production in April.

●Exports to the US plunged 10.5%, shrinking Germany’s trade surplus from €21.1B to €14.6B in April.

●EUR/USD slipped after weaker German data, highlighting market sensitivity to ECB policy cues.

US Tariffs Hit German Industry: ECB Faces Fresh Pressure

US tariffs hit the German economy in April, triggering declines in exports and industrial production.

Exports fell 1.7% month-on-month in April after a 1.1% rise in March, while imports jumped 3.9% (March: -1.4%). As a result, the trade surplus narrowed from €21.1 billion in March to €14.6 billion in April.

According to Destatis:

●Exports to non-EU countries tumbled 4.8%, while imports rose 3.4%.

●Exports to the US plunged 10.5% to €13 billion, the lowest since October 2024. However, imports from the US rose 3.9%.

●Meanwhile, exports to EU countries increased 0.9% in April, with imports up 4.5%.

●Industrial production also took a hit, falling 1.4% month-on-month in April after rising 2.3% in March.

According to Destatis, production in the pharma industry slumped 17.7%, with the manufacture of machinery equipment down 2.4%. In contrast, production in the construction sector and the food industry contributed positively.

There was a common thread across the two reports. While domestic and Euro Area demand remained resilient, overseas orders weakened, potentially impacting production. With Germany’s economy heavily dependent on global trade, the imposition of tariffs is altering supply-demand dynamics and dampening headline figures.

German Economic Data Could Boost July ECB Rate Cut Bets

On Thursday, June 5, the ECB cut interest rates by 25 basis points but refrained from committing to further easing. ECB President Christine Lagarde’s unexpectedly hawkish press conference pressured the DAX and EUR/USD, pulling both back from intraday highs.

However, today’s data underscores the potential drag of prolonged US tariffs on the German economy, supporting a more dovish ECB stance. Market reaction reflected this shift, with the EUR/USD pair responding to both the trade figures and a potentially less hawkish ECB stance.

Frederik Ducrozet, Head of Macroeconomic Research at Pictet Wealth Management, remarked:

“ECB staff projections with trade shocks: in a severe trade war scenario, GDP is 1% lower and inflation down to 1.8% in 2027, calling for more rate cuts. A mild scenario implies stronger growth and stable inflation, with the ECB likely on hold.”

EUR/USD Reaction to German Trade and Production Data

Ahead of today’s stats, the EUR/USD climbed to a pre-stat high of $1.14570 before falling to a low of $1.14302.

In response to the reports, the EUR/USD pair rose to a high of $1.14382 before sliding to a low of $1.14328. The EUR/USD retreat reflected the influence of the data on sentiment toward the German economy and ECB stance.

At the time of writing, the EUR/USD was down 0.10% to $1.14334.

Looking Ahead

The focus now turns to the resumed US-EU trade negotiations. Any meaningful progress toward a trade deal could ease concerns about external demand for Euro Area goods, potentially sending EUR/USD higher. Meanwhile, ECB commentary will remain pivotal for the short-term EUR/USD trajectory.

Stay updated here with real-time insights into global macro trends and central bank decisions.

Source: FX Empire

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Commodity

Industrial Demand and Tight Supply Fuel Surge

Silver and platinum, often overshadowed by gold, are now commanding the spotlight thanks to robust industrial usage and signs of growing physical scarcity. Spot silver climbed above $36/oz for the first time since 2012, while platinum peaked at $1,154.73/oz, supported by strong appetite from Indian buyers and resurging Chinese demand.

Unlike gold, which functions primarily as a store of value, silver and platinum serve dual roles. Silver is essential in solar panel manufacturing and electronics, while platinum plays a critical role in catalytic converters and laboratory equipment. With both markets facing projected deficits due to persistent demand-supply imbalances, the price momentum has gained further traction.

MKS PAMP’s metals strategist Nicky Shiels emphasized that silver’s sustained hold above $35/oz marks a “critical inflection point,” likely to reengage sidelined retail investors. For platinum, tight lease markets and a recent uptick in exchange-traded fund (ETF) inflows—up over 3% since mid-May—signal a renewed speculative interest and tightening physical market.

Gold’s Leadership Continues to Lift Precious Complex

Gold’s impressive 40% rally over the past year has anchored investor interest across the entire precious metals complex. With mounting geopolitical tensions, an ongoing tariff war, and increased central bank gold purchases, gold continues to serve as a safe-haven anchor, indirectly boosting demand for associated metals like silver and platinum.

Although silver and platinum have risen by 19% and 13%, respectively, over the same period, their relative affordability and industrial appeal have drawn in investors looking for leveraged exposure to macroeconomic and inflationary trends. According to Bloomberg, silver-backed ETFs have seen holdings expand by nearly 8% since February, suggesting steady institutional support.

Outlook: Fed Cuts May Accelerate Metals Rally

Friday’s upcoming U.S. nonfarm payrolls report will be closely watched by metals traders after a surprise rise in unemployment claims rekindled expectations that the Federal Reserve may cut rates twice before year-end. Lower interest rates typically enhance the attractiveness of precious metals, which yield no income but provide a hedge against currency debasement and economic instability.

With the Bloomberg Dollar Spot Index flat and rate expectations shifting, further upside for silver, platinum, and gold remains plausible, especially if upcoming economic data reinforce the case for monetary easing. Palladium also caught a modest 1.2% lift on Friday, mirroring the broad-based optimism in the precious metals market.

As investor confidence in global economic stability wavers and industrial demand remains strong, silver and platinum are finding renewed vigor beneath gold’s towering performance. The convergence of macro uncertainty, tightening physical supplies, and monetary policy easing presents a potent mix likely to sustain the momentum in the months ahead. For traders and investors alike, the undervalued status of silver and platinum may no longer be overlooked.