More Evidence of Strong Growth in the Euro Area

January 8, 2018

Economic sentiment in the euro area leaped 1.6 points to a December reading of 116.0, best since October 2000. Sentiment improved across the board — industry, households, services, retail, and construction. A separate measure, the business climate index, rose 1.7 points to the best score ever in this data series dating back to 1985.

The Sentix measure of investor sentiment toward Euroland rebounded 1.8 points in January to 32.9, its third straight score above 30. The reading at the end of 2016 was 10.0.

Retail sales volume in the euro area advanced by a strong 1.5% in November and was 2.8% greater than a year earlier.

A 0.4% decline in German industrial orders in November was less than forecast. Orders were 8.7% higher than a year earlier. Orders in October-November averaged 2.7% more than the third quarter mean.

The dollar nonetheless is trading 0.5% higher against the euro than its closing level before the weekend. The dollar also climbed overnight by 0.4% versus the Aussie dollar and Mexican peso, 0.3% relative to the Swiss franc and 0.2% vis-a-vis the yuan but is unchanged against the loonie, down 0.1% versus the kiwi and sterling and off 0.2% against the yen.

Japanese domestic financial markets are shut today in observance of the Coming of Age holiday.

Share prices in the Pacific Rim advanced 0.7% in India and Singapore, 0.6% in Hong Kong and South Korea, and 0.5% in China and Indonesia. European bourses have risen 0.9% in Greece, 0.3% in France, and 0.2% in Germany and Italy, but the British Ftse has edged 0.1% lower as the government cabinet undergoes some changes.

The 10-year German bund and British gilt yields fell back three basis points.

Comex gold dipped 0.1% but remains above $1,320 per ounce. WTI oil rose 0.3% to $61.64 per barrel.

The first central bank policy rate change of 2018 has been an increase, which is indicative of the favorable transition being made by the global economy. The National Bank of Romania hiked its key interest rate to 2.0% from 1.75%. This was the first change since a cut of 25 bps in May 2015 and the first increase since a full percentage point increase to 21.25% in November 2003.

Loretta Mester, President of the Federal Reserve Bank of Cleveland, anticipates around four fed funds rate increases this year, while San Francisco Fed President John Williams has a figure of three hikes in mind.

The Halifax index of British house prices dropped 0.6% on month in December, its worst result in six months and dropping the on-year pace to a 4-month low of 2.7%.

Swiss CPI inflation held steady at 0.8% in December, matching expectations.

In the year to November, industrial production rose 11.7% in Romania, 7.0% in Turkey and 8.8% in Hungary but fell 1.3% in Norway.

Australia’s Performance of Construction index fell 4.7 points to an 8-month low of 52.8 in December, signifying a slower pace of growth in that sector.

Chinese international reserves increased by $129 billion to $3.140 trillion in 2017. 16% of that increase occurred in the final month of the year, raising the level to a 15-month high.

In U.S. news, federal government policy now centers on congressional efforts to craft a budget spending compromise in order to avert a possible federal shutdown after January 19. There’s been a fire at Trump Tower in NYC, and consumer credit data will be released later today.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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