Germany\u2019s working-day adjusted, non-seasonally adjusted industrial production moved into positive territory in May, with the year-on-year rate rising to 0.1% from -0.5% previously. The shift marks a modest improvement in annual factory output momentum after a period of contraction.<\/p>\n
On a working-day adjusted basis, the latest reading implies that production was marginally higher than the same month a year earlier, reversing the prior decline. The data point to stabilisation rather than a strong rebound, as the gain remains close to flat.<\/p>\n
The shift in German industrial production from negative to positive is a significant signal for the Eurozone. We see this as a potential bottoming for the continent’s largest economy. This is the first positive year-over-year print we have seen in nearly a year, suggesting the worst of the manufacturing slowdown may be over.<\/p>\n
We believe this warrants a bullish stance on German equities through derivatives like DAX index futures. This industrial data reinforces the recent uptick in the ZEW Economic Sentiment survey, which rose to 15.2 last month, its highest level since the end of 2025. We are positioning for a move towards the 18,000 level on the DAX.<\/p>\n
A strengthening German industrial sector provides a fundamental reason to be long the Euro. We are looking at EUR\/USD call options, as this data may force a more hawkish tone from the European Central Bank. With the latest Eurozone inflation figure holding at 2.5%, continued economic strength reduces the probability of any near-term rate cuts.<\/p>\n
Consequently, we are taking a bearish view on German government debt. We expect yields on the 10-year Bund to rise from their current 2.6% level, and are therefore looking at buying put options or selling futures on the Bund. Historically, a robust industrial recovery has consistently put upward pressure on yields as the market prices out recessionary fears.<\/p>\n
This data suggests that the risk of a deep European recession has diminished significantly. We feel comfortable selling out-of-the-money puts on major German industrial names and the DAX index itself. Looking back at the 2017 recovery, a similar turn in industrial output preceded a sustained rally in European assets for the following six months.<\/p>\n\n\n\n