Euro Surges on Strong PMI Readings

euroEuro jumps today and takes the Swiss Franc higher after positive PMI data. The preliminary Eurozone PMI composite rose to 53.2 in January, up from December’s 52.1, beating expectation of 52.4. That was also the highest reading since June 2011. Eurozone manufacturing PMI rose to 53.9, highest level since May 2011. PMI service also rose to 51.9. German PMI manufacturing also surged to 32-month high of 56.3 even though the German PMI services missed expectation. Larger than expected improvements were also seen in French PMIs.

Markit Chief economist Williamson noted that “the upturn in the PMI puts the region on course for a 0.4-0.5% expansion of GDP in the first quarter, as a 0.6-0.7% expansion in Germany helps offset a flat-looking picture in France.” And, “elsewhere across the region growth has improved to its fastest since early-2011, meaning the periphery is showing clear signs of starting 2014 on a firm footing.”

ECB president Draghi said today that “the economy in the currency union area is growing again”. Though he cautioned that “it’s not yet broadly based and the jobless rate above 12% is very high.” Also, the warned that “the risk of setbacks is large” and he’d be careful “not to give an overly optimistic outlook”.

Economic data from US saw initial jobless claims rose slightly to 326k in the week ended January 18 and beat expectation of 331k. Canadian dollar recovers mildly as retail sales beat expectation and rose 0.6% mom in November, ex-auto sales rose 0.4% mom.

While BoJ governor Kuroda has repeatedly expressed his confidence to meet the 2% inflation target within 2 years, IMF is questioning that. IMF deputy managing director Shinohara “as long as steady progress is being made toward the 2 percent inflation target, we do not see a need for additional monetary accommodation.” But, “communication will need to focus on managing expectations as it will likely take more than two years.”

The flash reading of HSBC China manufacturing PMI unexpectedly dropped to 49.6 in January versus consensus of 50.4. That;s also the first contraction reading in six months. HSBC chief economist for China noted that the “marginal contraction” was “mainly dragged by cooling domestic demand conditions”. And, that “implies softening growth momentum for manufacturing sectors”. HSBC urged China to tilt policy towards support growth to “avoid repeating growth deceleration seen in 1H 2013”. The final HSBC manufacturing PMI will be released on January 30, to be followed by the official manufacturing PMI on February 1. Also released from China, conference board leading indicator rose 0.4% in December.