From the German IFO business confidence index came another sign of economic weakening

The German IFO business confidence index fell in Decemberfrom 102 to 101.0, below market expectations for a decline to 101.7. For theIFO is the fourth consecutive decline.

The current assessment sub-index fell to104.7 from 105.4, compared to expectationsfor 104.9.The business expectations index, which measures attitudes towardbusiness prospects over the next six months, dropped to 97.3 from 98.7 in November.

The decline ofthe IFO index strengthens the view that German economic growth rate couldweaken in 2019. GDP growth could slow from 1.8% in 2018 to 1.5% in 2019 withrisks tilted to the downside due to weakening global economy.

German IFO business confidence index and industrial production

The decline ofthe IFO is also a negative sign for the equity market, as indicated by the following charts. Both the IFO and the DAX peaked in January and begun a downtrend afterward, with the DAX 16.6% year-to-date. In our view, only an improvement of economic activity could sustain a reversal of the negative trend of the Dax.

German IFO business confidence index and DAX index

On the contrary, the decline of the IFO is positive for long-termgovernment bond yields. Without an unexpected rebound of economic activity, weexpect the 10-year government bond yield to remain at historically low levelsin early 2019.�

German IFO and BUND yields

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