European bond rally may have reached a turning point

eurozone industrial output

As Barclays analysts in London noted on Friday:

Euro area industrial production inched down 0.1% m/m in January, slightly weaker than our downwardly revised, below-consensus projection. This is consistent with an annual growth rate of 1.2% y/y, up from 0.6% y/y in December. Data for December have been revised up 0.3pp to 0.3% m/m. IP in France, Portugal and Spain rose, while it was flat in Germany and surprisingly, fell in Italy.

·      Overall, euro area industrial production has been rising very modestly in the past few months, echoing developments in manufacturing confidence. PMIs climbed to a six-month high in February, but improved only slightly since a local trough was reached in November. They have continued to hover around 51.0 since August 14, a level consistent with muted growth. A similar message was sent by the European Commission survey. Assuming euro area IP is flat in February and March, the carry over for Q1 15 would be 0.2% q/q, slightly down from 0.4% q/q in Q4 14, suggesting a broadly neutral contribution to GDP. 

·      Details revealed that durable goods led the headline fall (-2.2% m/m), largely offsetting energy output, the only subcategory in decent positive territory (+0.9% m/m). Non-durable consumer goods and capital goods output inched up just 0.1% m/m, while intermediate goods fell 0.5% m/m (Figure 5). Manufacturing output declined by 0.3% m/m, nonetheless consistent with an upward 3m/3m trend up to 0.9% in January. In terms of sector, chemicals, metals and machinery and equipment output fell moderately, while motor vehicles output rose significantly. All 3m/3m trends are in positive territory in January.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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