Market Brief: Eurozone economy continues to prosper!

Shaun Garrett

Dealing Team

The Eurozone economy closed out the year with the strongest Composite PMI reading in nearly seven years, driven by accelerating services and manufacturing activity.

Today's data releases
  Key levels
10:00 Eurozone Consumer Price Index   Support Resistance
10:00 Eurozone Producer Price Index GBP/USD 1.3302 1.3657
13:30 US Non-farm payrolls GBP/EUR 1.1125 1.1482
15:00 US ISM Non-manufacturing      

Market overview

Yesterday saw the release of the UK PMI services data. PMI picked up to 54.2 in December from 53.8 in November (consensus 54.0, Investec 53.8). Meanwhile, the composite PMI came in at 54.9 from a downward-revised November reading of 54.8, as the stronger services PMI print managed to offset the sharp decline in the manufacturing PMI on Tuesday. Still, there were a number of points of concern within the services PMI, new orders rose at the weakest pace since August 2016, employment growth slowed to a nine-month low and input cost inflation picked up to its highest level in three months. Survey compilers IHS Markit reported that the survey included responses both before and after the EU determined that “sufficient progress” had been made in Brexit negotiations to move onto talks over a transitional period and the future trading relationship.
At the same time the BoE lending figures were released, it showed that 65,100 mortgages had been approved for house purchase in November, an improvement on October’s upward-revised 64,900, beating both consensus and Investec expectations for them to recede to 64,000. These are the first figures released since the first rate hike in a decade by the Bank’s MPC in early-November and halted a sequential four-month decline which saw approvals drop to the lowest in over a year in October. Overall mortgage approvals also picked up to 133,100, as more existing homeowners re-mortgaged their properties. Taken together, this resulted in net mortgage lending firming to £3.5bn, from a revised £3.3bn in October. However, net consumer credit was lower-than-expected at £1.4bn and October’s figure was revised down to the same level, corresponding to a 9.1% YoY decline (the sharpest drop since end-2015). The annual growth of consumer credit now stands at 9.1%, down from double-digit rates in the middle of last year.
The Eurozone economy closed out the year with the strongest Composite PMI reading in nearly seven years, driven by accelerating services and manufacturing activity across all major economies. Markit’s final composite PMI data release yesterday rose to 58.1 in December from 57.5 in November and an upward revision from the ‘flash’ estimate of 58.0. It is now at the highest level since February 2011 and significantly above the 50 mark that separates growth from contraction. Based on forward-looking indicators within the PMI release, the momentum is set to continue. The composite new orders index climbed to 58.0 last month, the highest reading since July 2007. This demand helped increase employment, as hiring growth matched a 17-year record high set in November.
Yesterday afternoon US ADP employment data was released showing that private employers added 250,000 jobs in December, marking the biggest monthly increase since March 2017. The forecast had been for a much lower level at 190,000. The ADP figures come ahead of the US Labor Department’s more comprehensive Non-Farm Payrolls report this afternoon, which includes both public and private-sector employment.

The day ahead

This morning Eurozone CPI & PPI data is released at 10am. With inflation still subdued in the Eurozone economy, investors will be keeping a close eye on the release as any number away from consensus could impact expectations over monetary policy for the Eurozone in 2018. Non-Farm payrolls this afternoon are expected to edge back from November’s bumper month of 228,000, to 190,000, this figure would still be very positive for the US economy and could help the Dollar retrace some of the losses suffered this week. 

Thought of the day

Diehard Irn Bru fans have stockpiled their favourite drink as manufacturers AG Barr embark on their sugar reduction programme by changing the secret recipe. The sugar content of the drink will drastically reduce by almost half in a move that reflects one that many companies have also made. This has left many fans unhappy and taking to social media to voice their dismay. It comes as the government implements a levy on sugary drinks which was announced by George Osborne back in 2016. Make sure you are on the front foot with regards to any changes imposed on your business by talking to your Investec dealer today and seeing how we can help manage your exposure to FX risk to mitigate the impact.

Discover how our Treasury team can help your business

Live FX graph

Live FX graph

Live FX rates

Live FX rates

  • View important information

    This Market Commentary is provided for information purposes only and should not be construed as an offer, or a solicitation of an offer, to buy or sell any related financial instruments. This commentary has not been prepared in accordance with legal requirements designed to promote independent investment research. The information contained in this commentary has been compiled from sources believed to be reliable but no representation or warranty, implied or not, is provided in relation to its accuracy, suitability or completeness. Any opinions, forecasts or estimates constitute a judgement as at the date of this report and do not necessarily reflect the view of Investec Bank plc ("Investec"), its subsidiaries or affiliates. This commentary does not have regard to the specific investment objectives, financial circumstances or particular needs of any recipient and it should not be regarded as a substitute for the exercise of investors' own judgement. Investors should seek their own financial, tax, legal and regulatory advice regarding the appropriateness or otherwise of investing in any investment strategies and should understand that past performance is not a guide to future performance and the value of any investments may fall as well as rise.This commentary is confidential and may not be disclosed or distributed to any third party without the prior written consent of Investec. Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and a member of the London Stock Exchange. Registered office 2 Gresham Street, London, EC2V 7QP. Investec Bank plc 2014.