Trio of respectable Eurozone data fails to lift stock markets
A trio of respectable Eurozone economic data reports failed to lift stock indices in the 17-nation bloc as investors cut exposure to risk ahead of this week’s crucial stimulus kick-off by the European Central Bank.
Monday’s session saw the release of manufacturing data from the euro area which although lacklustre, confirmed that output remained in expansion territory at a six-month high with Germany, Ireland and Italy driving the performance.
Even more encouragingly, inflation data from the Eurozone showed consumer prices fell 0.3% in February, beating analysts' estimates for a 0.5% decline, and recovering from the previous month's 0.6% drop.
Elsewhere, unemployment across the region fell to 11.2% in January, registering its lowest level since April 2012, driven by improving jobs growth out of Germany with the unemployment rate at 4.7% and Austria at 4.8 %.
Unsurprisingly, the labour market in peripheral nations was the lowest with Greece unemployment rate stubbornly firm at 25.8%. In Spain, the unemployment rate was at 23.4% while in Italy, the rate stood firm at 12.6% despite labour reforms being passed by Italian Prime Minister Matteo Renzi's reformist government to prop up the economy.
The generally upbeat data sets confirmed that Eurozone growth was on board, albeit still tepid with hopes now on ECB chief Mario Draghi to inject much needed stimulus to filter into the real economy. The ECB is expected to kick off its monthly EUR60bn bond-buying programme this week with details set to be announced at the March policy meeting on Thursday.
Economist Francois Cabau at Barclays expects Draghi this week to take stock of the improving picture in the Eurozone, which is most likely the result of tailwinds from lower oil prices, the exchange rate, interest rates and a smaller fiscal drag.
“At some point during the press conference, we expect the ECB to mention/publish practical execution details of its asset purchase program with actual buying starting in early March, possibly the week following the ECB meeting. Although short-term prospects look undeniably better, the ECB is likely to further reiterate the need for member states to do their homework in terms of structural reforms,” added Cabau.
Midday in London, Eurozone area assets were mixed. In stocks, the Eurostoxx 50 index of the region’s leading blue-chips was down 16.78 points or 0.47% at 3582.22, while the Stoxx 600 index was off 2.18 points or 0.56% at 390.03. In FX markets, the euro was firmer against the US dollar, up by 0.25% to change hands at $1.1224.
In fixed income markets, peripheral yields continue to register new lows with Portuguese 10-year government bond yields now at 1.799% while the Italian 10-year is at 1.3%. Underpinning the suppression of bond yields is the sharp rally in sovereign bonds as investors gear up for the ECB bond-buying programme, pushing shorter term government bonds to produce negative investment yields.
Attention turns to Cyprus where Eurozone policy-makers continue to work through the fine details of the Greek deal with the country’s new government in their latest bid to prevent a ‘Grexit’ from the 17-nation bloc.