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European Economic Update – 28 April 2015

A mixed performance from European markets as PMI surveys disappoint; April inflation data the main event for the current week

In Europe there was a mixed performance from markets during the recent fortnight as a number of economic data releases appeared to point toward a murkier growth outlook, therefore, calling into question what had previously been a growing consensus that Europe may finally have begun to turn a corner.

This meant that many continental investors hopped out of the fire and onto the fence, leading all major indices to experience various bouts of downward pressure during the period.

Looking at the data itself, two of the offending announcements were manufacturing & services PMI numbers, which each surprised on the downside for both France and Germany. This is while for the euro-zone as a whole, numbers emerging from both sectors were also similarly disappointing.

Another source of unease for the week was the German ZEW survey of institutional investors and analysts which also highlighted a cooling of optimism among investors within Europe’s economic powerhouse.

However, almost in contradiction to the aforementioned barometers, the German Ifo Business Climate survey that was released at the same time as the PMI data appeared to highlight an increase in business confidence across broad swathes of the German commercial sphere.

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What this means for the road ahead in Europe

In assessing the impact and implications of the above referenced data we consider that the confidence surveys, whether polled from businesses or investors, are concentrated solely upon Germany which ignores much of the progress elsewhere on the continent.

We are also unsurprised by the outcome of the French and German PMI’s for April as each index in both countries has remained locked within a two steps forward, followed by one backward, motion for quite some time now. Most importantly, the broader trends within each industry remain largely positive.

This is while elsewhere on the continent we continue to see signs of a tentative recovery, most notable in Spain, Italy and some of the Nordics; which tells us that hope still exists in both the north and south of Europe.

Looking to the days ahead the core focus of investors will be upon April flash inflation figures for the continent as a whole, which should provide some indication as to whether or not we have really reached the bottom in terms of disinflation and deflation.

Our anticipation is that at the block level, we have probably seen the end of the deflationary scare, particularly in the event that energy prices manage to cling onto recent gains.

Germany’s DAX / Daily Intervals

DAXMAY

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Spain’s IBEX / Daily Intervals

IBEXMAY

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France’s CAC 40 / Daily Intervals

CACMAY

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