Daily Kickstart (European Stocks Get Lift From PMI Data, But Political Jitters Persist)

Europe kicked off what’s likely to be a volatile year on a high note Monday as manufacturing activity in the bloc hit a five-year high according to data from Markit.

From the press release:

The eurozone manufacturing sector ended 2016 on a high note. At 54.9 in December, up from 53.7 in November, the final Markit Eurozone Manufacturing PMI® posted its best reading since April 2011 and was unchanged from the earlier flash estimate. The average for the final quarter (54.0) was solidly above that for the third quarter (52.1) and signalled the fastest growth since the second quarter of 2011. Moreover, the average PMI reading over 2016 as a whole (52.5) was the highest annual average since 2010.

Or, visually:


Here’s the country by country breakdown:


The reading for Germany was notably robust, hitting a three-year high. The DAX is up nearly 1% as I write this. Deutsche Bank is sharply higher after the embattled bank’s chairman said no mergers or state bailouts are in the works following last month’s $7.2 billion settlement with the US Justice Department.


Monetary policy divergence between the Fed and the ECB could continue to pressure the euro in 2017, which would be a boon for the European economy (see the latest data on FX positioning below), but at the end of the day, it’s still all about politics. “While the strong end to 2016 is encouraging news the manufacturing revival clearly remains vulnerable to political risk,”Chris Williamson, Chief Business Economist at IHS Markit said on Monday. “In particular, elections in the Netherlands, France and Germany represent potential key flashpoints which could lead to a marked intensification of political uncertainty in the region in 2017.”

“Our expectation is that eurozone economic growth will slow slightly in 2017, down from 1.7% in 2016 to 1.4%,” Williamson added.


(Table: Goldman)

As WSJ noted on Sunday, a surprise victory for a populist/nationalist candidate is by no means out of the question. “[A Le Pen victory in France] is perfectly possible,” Goldman’s Andrew Wilson told the Journal, adding that although it’s not the bank’s “central case”, it’s probably not accurate to call it “a tail risk event,” either.

“It would raise the question for markets, can the euro project survive?”, Wilson went on to warn. “Following last year’s dramatic political events, policy uncertainty will remain high,” SocGen said, in a note out Monday morning.

Meanwhile, yields on German and Spanish 10s hit post-US election lows. The move “continues slightly more bullish tone from the U.S. in the last days of 2016” Allan von Mehren, chief analyst at Danske Bank told Bloomberg, adding that “bond markets were a bit stretched technically and we are now seeing some rebound in prices.”

So that’s Europe. Pretty much everything thing else (DM wise) is closed, as the long holiday break enters its final day.

Finally, here’s a rundown of notable EM headlines from overnight via Bloomberg:

Emerging market stocks are set to end their longest streak of gains in almost four months as some markets resumed trading in the new year. The Polish zloty and Turkey’s lira led developing-nation currency losses. Stocks:

  • MSCI EM Index -0.2%; gauge +8.6% in 2016, 1st yearly gain since 2012
  • Turkey’s Borsa Istanbul 100 Index -0.5%
  • Saudi Arabia’s Tadawul All-Share Index +0.5%


  • MSCI’s EM FX gauge -0.2%, set for 1st decline in 3 days
  • PLN -0.6% as Poland is set to prepare mechanisms to stimulate FX loan conversion
  • TRY -0.5% to 3.5395/USD on rising risk concern after a deadly attack in Istanbul
  • MXN +0.2


  • Polish 10-year bond yields rise for a 5th day as MBank expects CPI accelerating to “slightly” below 2% in next 3-4 months
    • Poland to offer total of 25b-38b zloty of bonds at 5-6 auctions in 1Q

What to Watch:

  • Erdogan Vows to Destroy Threats After 39 Killed in Istanbul
  • Turkey Sells 2.56b Liras Debt to State Bodies, Market Makers
  • China Central Bank Adviser Calls for 6%-7% Growth Target Range
  • Trump to Continue Making News, Policy via Unconventional Twitter

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