In this report, we provide an update on key developments in German politics:
#1 How to tackle the growth malaise - tax reform and cutting red tape as first steps. Despite dwindling poll numbers and weak growth prospects, the government’s appetite for sweeping structural reforms appears limited. We take a look at the government’s “10 point action plan”, the proposed corporate tax reform, and renewed efforts to cut red tape.
#2 Rise of the far-right. Sticky inflation, change-fatigue and rising immigration have contributed to rising approval rates of the far-right AfD, reaching an all-time high at 21.5% in opinion polls in recent weeks. We analyze what that means for coalition building in the upcoming regional elections (both this weekend and next year) and how this might influence the overall policy debate at the federal level.
#3 Polls suggest conservatives set to win regional elections in Bavaria and Hesse on October 8. We give an update on how Sunday’s regional elections in two of Germany’s most populous states might impact national policy-making and the likelihood of agreeing on a new set of EU fiscal rules by year-end. [more]

In a new ‘Q&A with’ our US economist Amy Yang speaks about her role, highlighting how economists analyse data and closely track the Fed’s communication to forecast economic conditions. Regarding the economy, she outlines the team’s anticipation of a mild recession in early 2024, even amidst an enhanced likelihood of a soft landing. [more]

The past decade has challenged our understanding of money as payment alternatives and new forms of currency entered our everyday lives. Digital assets such as Bitcoin have captured the spotlight, but we believe it will be central bank digital currencies (CBDCs) that will prevail. And yet, even as the transition to digital payments continues, cash does not face extinction. [more]

Once again, some see Germany as the “sick man of Europe”. This week, the 2023 ranking of the Global Innovation Index is released with Germany at rank 8, again. It does not only provide a good measure for innovation but also gives important insights into a country’s competitiveness. Indeed, there are numerous challenges especially with respect to digitalization and demographics. But Germany is also still a powerhouse in providing excellent R&D. [more]

In March 2021 we published a report introducing our cross-sectional mean reversion factor that has been traded out-of-sample since then (Bloomberg ticker: DBRPGERU). In this new report we expand on our previous work by showing how using daily returns more efficiently improves performance even when trading weekly and demonstrate how earnings dates can boost predictive power by avoiding trading against the post-earnings drift. We also introduce an approach to improve the signal using trading volume and propose a turnover control approach that can enhance capacity while preserving performance. [more]

The banking sector in Europe is benefiting from a set of conditions which have allowed for the strongest bottom-line result on record, even surpassing the pre-financial crisis peak of 2007. Rising interest rates have led to a surge in net interest income, asset quality remains sound and provisions therefore contained, and banks maintain tight cost discipline. Capital and liquidity levels continue to be robust, considerable returns to shareholders notwithstanding. European banks have also caught up with their US peers with regard to profitability ratios, for the first time in many years. Further gains in this benign environment may be harder to achieve though. [more]

The Federal Reserve wrapped up its two-day meeting today. Please watch Deutsche Bank chief US economist Matthew Luzzetti and spokesperson Gary Ramsay debrief the outcome. [more]

In their latest report, Adrian Cox and Galina Pozdnyakova take us through six important themes that began to emerge over the past few months, proving that issues around AI continue to be top of mind in all areas of the financial, political, and technological world despite a typically more relaxed summer pace. [more]

The word “recession” has been one of the most widely used in markets over the last 12 months. In their annual Long-Term Asset Return Study, Jim Reid, Henry Allen and Galina Pozdnyakova focus on understanding what history tells us about the frequency, depth and duration of recessions, along with what causes them using cycle data stretching back to 1700. The team also takes a look at their impact on asset prices, and the likely shape of them going forward. [more]

The excitement around Artificial Intelligence that had been building since OpenAI’s launch of ChatGPT at the end of last year cooled off slightly over the past couple of months. Investors, entrepreneurs and analysts went to the beach, the media focused on time-honoured summer themes including season stories, and students took time off from writing essays using chatbots. Adrian Cox highlight six themes you missed while you were at the beach. Visit our dedicated AI website for more www.dbresearch.com/ai [more]