Global Daily – Still confident in above consensus eurozone view

by: Aline Schuiling , Nick Kounis

Euro Macro: Composite PMI ends streak of three monthly rises – The eurozone composite PMI, which tends to track GDP growth relatively well, moved lower in February, ending a streak of three consecutive monthly rises. The index declined to 57.5, down from 58.8 in January. The decline in the composite index reflected a softening in both manufacturing and services. On the positive side, the details of the composite PMI show that the employment component was resilient in February, edging only marginally lower and remaining consistent with robust job growth. Despite its decline in February, the composite PMI has remained at an elevated level from a historical perspective and in line with GDP growth of around 0.7-0.8% qoq. Therefore, we still feel comfortable about our forecast that economic growth in the eurozone picked up somewhat in the first quarter of this year (following the 0.6% qoq growth that was recorded in 2017Q4) and our above consensus forecast for eurozone GDP growth in 2018 of 2.8%. (Aline Schuiling)

UK Macro: Hawkish BoE commentary points to hike in May – BoE Governor Mark Carney, Chief Economist Andy Haldane and Deputy Governor for Monetary Policy Ben Broadbent appeared before the Treasury Select Committee speaking on the Inflation Report today. Their commentary was generally hawkish, confirming the view that the MPC will vote to raise interest rates before long, most likely in May. Mr Carney signalled that interest rises would be ‘somewhat greater and somewhat sooner’. All three MPC members suggested that this reflected diminishing slack in the labour market and wider economy that would lead to building inflationary pressures. Indeed, Mr Haldane signalled that the MPC already say early evidence that wage growth would accelerate revealing that ‘we get intelligence from our agents that would suggest that wage settlements this year were going to pick up, perhaps to a number with a three in front of it, rather than a two in front of it.’ These trends were certainly not evident in today’s labour market data, which showed average weekly earnings growth stable at 2.5% yoy 3m mav. for the third consecutive month in December. Nevertheless, the MPC seems to have a higher degree of confidence that wage growth will strengthen in the coming months. (Nick Kounis)