German industrial orders rebounded in May
The recent uptick in German industrial orders in May, reported to have risen by 1.9% month-on-month after a notable decline in April, suggests a tentative recovery phase for the German manufacturing sector. Per the full note from ING, this rebound can partially be attributed to shifts in international order channels due to geopolitical tensions in the Middle East, impacting trade dynamics positively for German firms. Such a trend hints at resilience in the sector despite earlier fears regarding supply chain disruptions. The desk observes that while there is a glimmer of recovery, the broader momentum remains sluggish following last year's defensive-driven rebound. With no upcoming high-impact events for Germany, traders should monitor this development's potential influence on the EUR's trajectory, particularly against the USD.
What the desk is arguing
The desk observes that the 1.9% month-on-month increase in German industrial orders for May points towards a gradual recovery in the manufacturing sector. As cited in ING's analysis, even as geopolitical issues generate challenges, some parts of German manufacturing are increasingly leveraging disruptions affecting competitors from Asia.
Despite positive indications, the desk highlights that order books have recovered only slowly. Year-on-year, industrial orders rose 6.2%, but the momentum has been constrained, with order growth mainly hovering around 1% each month this year as indicated by the cautious trajectory observed.
Where it sits in our coverage
The consensus target for the EUR/USD pair is set at 1.075, operating within a range from 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
The desk's view aligns closely with jpmorgan, suggesting a more optimistic outlook towards a higher trajectory for the euro, while bofa remains cautious, favoring a lower target.
How other firms see it
General sentiment among aligned firms like jpmorgan suggests a bullish outlook on the euro, supporting the idea of a recovery in the German industrial sector. Conversely, firms like bofa have adopted a more reserved stance which could diminish bullish sentiment.
Notably, the EUR/USD is notably correlated with macroeconomic indicators such as German manufacturing data and the broader EU economic outlook, making it a critical pair to watch amid these developments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01German industrial orders increased by 1.9% in May, indicating a potential gradual recovery.
- 02Year-on-year growth stands at 6.2%, fueled partly by geopolitical shifts benefitting German manufacturing.
- 03Order book momentum has slowed, raising concerns about the sustainability of this recovery.
- 04Low-impact events are on the calendar, suggesting limited immediate volatility for the EUR.
Market implications
Traders should keep a close eye on the EUR/USD pair, particularly if industrial data continues to show positive trajectories. Levels around 1.075 will be critical as a test point of strength. Monitoring macroeconomic trends from Germany in the coming weeks could provide further insights into currency movements.
Risks to this view
A reversal of this bullish outlook could stem from renewed supply chain disruptions resulting from geopolitical tensions or a marked drop in industrial performance in upcoming monthly reports. Additionally, any significant changes in central bank policies could also shift the momentum unexpectedly.
Older quick take Quick take 07:21 Germany German industrial orders rebounded in May Industrial orders increased in May, fuelling hopes of at least a gradual recovery in German industry Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Carsten Brzeski Global Head of Macro German industrial orders increased by 1.9% month-on-month in May, from a 3.8% mum decline in April, suggesting that parts of German industry are still benefiting from the rechannelling of international orders due to the war in the Middle East. On the year, orders were up by 6.2%. It sounds counterintuitive, but the conflict has provided a boost to parts of German manufacturing.
The initial support came from stockpiling and more recently, some companies have benefited from Asian competitors being more exposed to disruptions affecting trade routes through the Strait of Hormuz. However, despite today’s encouraging data, order books are recovering only gradually. After last year’s rebound, mainly driven by strong demand in the defence industry, order books have been struggling to really gain more momentum this year.
While industrial orders increased by more than 4% MoM between September and December last year, they were up by some 1% every month this year; at least when taking out the devastating January number (-11.5% MoM). All in all, despite initial fears that the conflict in the Middle East would trigger new supply chain disruptions, German industry appears to have escaped with little more than a black eye. Germany GDP Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take
Sources & References
How we cover this story