Goldilocks Data In Europe Is ‘Just Right’ For Risk

Ok, well it was data galore overnight and on the heels of a better-than-expected Caixin PMI print out of China (just forget about South Korea’s manufacturing PMI sliding back into contraction), we got some decent numbers out of Europe as well.

Notably, the Euro Area PMI was the very definition of “just right,” printing at 56.6, down from a six-year high of 57.4:


So “broad-based” strength, but just a shade off “euphoria.” But the “best” part was this (from the press release):

Input cost inflation slowed to a nine-month low.

Hilariously then, this print both underscores the notion that the economic recovery is continuing apace and that deflation pressures are building, a veritable Goldilocks combination.

“While price pressures eased in July, inflationary pressures could pick up again if demand continues to outstrip supply,” IHS Markit’s chief business economist said, adding that “Euro-zone factories were buzzing with activity.”

Meanwhile, Eurozone GDP came in in-line at 0.6% Q/Q in Q2. Another “just right” print:


What do you get when you combine PMI data that underscores dovish inflation dynamics with generally positive reads on the overall pace of economic expansion?

Why, you get European stocks rallying and bund yields falling, that’s what you get!


Meanwhile, the euro was relatively well-behaved after Monday’s sudden lunchtime (U.S. time) surge raised concerned that we might soon hit the 1.20 “pain threshold” for European equities.

“A long-awaited earnings revival has boosted European equities in 2017, even though a recent rally in the euro is stoking concern that it could derail the recovery,” Bloomberg wrote earlier this morning. “The strength of the shared currency has pushed earnings revisions into negative territory.”




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