Eurozone Economic Sentiment Indicator (ESI) rose 0.3 to 101.5 in December, slightly above expectation of 101.4. The stabilization in the ESI resulted from markedly higher confidence in services (+2.2 to 11.4), construction (+2.2 to 5.0) and, to a lesser extent, retail trade (+1.0 to -0.8), while confidence worsened among consumers (-0.9 to -8.1) and remained virtually unchanged in industry (-0.2 to -9.3).

Amongst the largest euro-area economies, the ESI increased significantly in Italy (+1.7) and Spain (+1.3) and edged up in Germany (+0.4), while it remained broadly unchanged in France (-0.2). By contrast, the ESI declined somewhat in the Netherlands (-0.4).

Business Climate Indicator dropped -0.04 to -0.25. With the exception of production expectations, which improved markedly, all the components of the BCI worsened.

Eurozone CPI accelerated to 1.3% yoy in December, up from 1.0% yoy, matched expectations. CPI core was unchanged at 1.3% yoy, also matched expectations. Looking at some details, food, alcohol & tobacco is expected to have the highest annual rate in December (2.0%, compared with 1.9% in November), followed by services (1.8%, compared with 1.9% in November), non-energy industrial goods (0.4%, stable compared with November) and energy (0.2%, compared with -3.2% in November).

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Eurozone Sentix Investor Confidence rose to 7.6 in January, up form 0.7, above expectation of 3.0. That’s also the third consecutive rise, and the highest level since November 2018. Current Situation Index rose from -1.0 to 5.5, third increase in a row, highest since June 2019. Expectations Index rose from 2.5 to 9.8, also the third increase in a row, highest since February 2018.

Sentix said: “This development is remarkable in two respects. For one thing, investors are once again making advance concessions to the ‘hard’ data. The manufacturing sector in particular is not yet showing any convincing signs of an upswing, at best signs of stabilization.”

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Eurozone PMI Services was finalized at 52.8 in December, up from November’s 51.9. PMI Composite was finalized at 50.9, up from November’s 50.6. Looking at the member states, Italy PMI Composite hit 11-month low at 49.3. Germany PMI Composite recovered to 50.2, revised up from 49.4, hitting a 4-month high. France PMI Composite dropped to 3-month low of 52.0.

Chris Williamson, Chief Business Economist at IHS Markit said:

“Another month of subdued business activity in December rounded off the eurozone’s worst quarter since 2013. The PMI data suggest the euro area will struggle to have grown by more than 0.1% in the closing three months of 2019.

“At face value, the weak performance is disappointing given additional stimulus from the ECB, with the drag from the ongoing plight of the manufacturing sector a major concern. However, policymakers will be encouraged by the resilient performance of the more domestically-focused service sector, where growth accelerated in December to its highest since August. Business optimism about the year ahead has also improved to its best since last May, suggesting the mood among business has steadily improved in recent months.

“While the tide may be turning, downside risks to growth in the year ahead nevertheless remain notable. While US-China trade wars have eased, any escalation of trade tensions between the US and Europe will likely hit exports further. Brexit also remains a major uncertainty and is likely to continue to dampen growth in Europe. Nonetheless, in the absence of any major adverse developments we expect to see growth starting to improve as 2020 proceeds, with low inflation and easing financial conditions supporting consumer spending in particular.”

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