It’s been a soft start to the year for European stock markets with all major benchmarks falling lower. The FTSE 100 is lower by around 30 points after ending 2017 at a record high. The Pound is little changed against most of its peers but some broader weakness seen in the buck has pushed the GBPUSD rate to its highest level in more than 3 months above 1.35.
Eurozone manufacturers post strongest ever month
The first notable batch of economic data released in 2018 has beaten expectations with the latest Eurozone manufacturing PMI coming in at its highest ever level. The reading of 60.6 for December is the strongest since the survey began more than two decades ago and the growth appears to be fairly broad-based with Austria, Germany and Ireland all posting record highs. 2017 was better than many expected for the European economy, and the latest data further supports the notion that after being a laggard for much of the past decade, the Eurozone could now become a driving force for global growth going forward.
European stocks hit 3 ½ month low
Despite the strong manufacturing data, European bourses are trading lower across the board this morning with the Eurostoxx 50 falling to its lowest level since mid-September and down by almost 1% on the day. After a strong first half of the year, largely thanks to Macron’s election victory, the rally in European equities failed to kick-on and there is a growing divergence between indices on the Continent and their UK and US peers. The FTSE 100 ended 2017 at an all-time high whilst the S&P500 posted a 12th consecutive monthly gain in December - the only calendar year on record where every single month showed a positive return for the largest US stock benchmark. Part of the divergence can be explained away by a strong appreciation in the Euro but this doesn’t on its own justify the underperformance and it will be interesting to watch going forward whether European markets can close the gap, especially considering their strong underlying economic performance.