The latest Markit flash PMI readings for the Euro area have shown a surprise uptick in Eurozone activity in November. The flash reading of the composite PMI, which measures all activity across the Eurozone, rose to a 4½-year high of 54.4 in November from 54.0 in October. The figure was higher than consensus estimates of 53.9.
There was improvement in employment, new orders, and backlogs of work, which all rose to 54-month highs. The services sector performed more strongly than the manufacturing sector and saw activity accelerating to the fastest pace since May 2011. Services PMI rose to 54.6 in November from 54.2 the prior month, and was above forecasts of 54.1. Activity in the manufacturing sector also increased with output rising at the fastest rate since May 2014. Manufacturing PMI rose to 52.8 in November from 52.0 from the prior month, beating estimates of 52.3.
Looking more closely at the Eurozone’s two largest economies, sentiment improved noticeably in Germany but France was a laggard once again as confidence appeared to be hit by the recent attacks in Paris.
Activity in Germany was driven by the private sector, which reported a strong rise in new business. There was a big jump in backlogs of work, indicating that slack in the economy is narrowing. Services PMI rose to 55.6 in November from 55.2 previously and was sharply above expectations of 54.3. Manufacturing PMI also surprised on the upside, rising to 52.6 from 51.6 in October and was above estimates of 52.0. However, output in the sector appeared to be rising at a slower rate.
In France, manufacturing activity was in line with estimates and edged up to 50.8 in November from 50.7 the prior month. Services PMI was weaker though and dropped to 51.3 from 52.3 previously and fell short of estimates of 52.6. French businesses reported the slowest growth in activity in three months. The services sector saw the fastest rise in new business for five months but confidence was dented as a result of the recent terrorist attacks in Paris. New business orders also rose for manufacturers but there was a drop in export orders.
The latest figures suggest that Eurozone GDP growth has quickened to 0.4% in the fourth quarter, after a disappointing 0.3% growth in the third quarter. The weaker-than-expected growth in Q3 is one of the factors the European Central Bank has been concerned about the Eurozone economy, leading it to signal to the markets that fresh stimulus measures are likely to be announced as early as on December 3 when it next meets. The overall stronger-than-expected rise in Eurozone activity in November is unlikely to be significant enough to convince the ECB that Eurozone recovery is on a sustained path, especially given that growth was expected to have gotten a bigger boost from the asset purchase program, which has now been running since March.
The euro shrugged off the data as investors still expect looser monetary policy in the euro area in the coming months. With Eurozone inflation still stuck near zero and the weakened outlook for Europe’s export markets, the ECB would not want to be seen jeopardizing the region’s recovery by delaying any fresh stimulus measures. The single currency was steady around 1.0622 against the dollar in mid-European session, having hit an earlier 7-month low of 1.0599, while against the yen, it was last trading at 130.84.
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