Thursday, January 23, 2014

Eurozone manufacturing expansion accelerates; risks remain

We've had some significant moves in the currency markets this morning. In particular, the euro rose quite sharply on the back of some strong manufacturing numbers out of the Eurozone.

Source: Investing.com

Germany remains the euro area's powerhouse, with manufacturing expansion there accelerating further, driving up the aggregate measure.

Source: Investing.com

European stock markets (followed by the US) however fell in spite of this seemingly good news.



The primary reason for the equity markets' sell-off was the weak manufacturing signals out of China (see Twitter post). As discussed here, China's near-term economic trajectory presents the greatest risk to global growth - particularly for the Eurozone.

The equity markets were also uneasy with the euro strength, which could choke exports from the area. Furthermore, Draghi struck a cautious tone with respect to the area's economic recovery, saying: "All in all, the risk of setbacks is large. I would be very careful not to give an overly optimistic outlook."



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