The Euro Zone Hasn't Looked This Good Since June 2011

The early economic numbers out of Europe are looking very encouraging.

Earlier, we learned that the euro zone flash purchasing managers’ index jumped to 53.2 in January, the highest level since June 2011.

Any reading above 50 signals expansion.

This is a preliminary measure. Still, it is up significantly from 52.1 in December, and it is well ahead of the 52.5 expected by economists.

The euro zone’s services sub-index improved to a four-month high of 51.9 and the manufacturing sub-index hit a 32-month high of 52.7

“The euro zone’s recovery gained further momentum in January,” said Markit economist Chris Williamson. “The upturn in the PMI puts the region on course for a 0.4-0.5% expansion of GDP in the first quarter, as a 0.6-0.7% expansion in Germany helps offset a flat-looking picture in France. Elsewhere across the region growth has improved to its fastest since early-2011, meaning the periphery is showing clear signs of starting 2014 on a firm footing.”

Germany Is Strong

Germany’s Flash PMI number were particularly strong. The composite PMI jumped to a 31-month high of 55.9 in January, with the manufacturing sub-index jumping to a 32-month high of 56.3.

“Stronger demand in the goods producing sector was attributed to higher business intakes from both domestic and foreign markets, with non-EU countries noted as a source of growth,” said Markit’s Oliver Kolodeiske about Germany.

Markets are mixed in Europe. Britain’s FTSE 100 is flat. Germany’s DAX is down 0.1%, and France’s CAC 40 is up 0.1%.

And Then, There’s China

Some of the momentum out of Europe may be hindered by China, where data continue to confirm an economy that is slowing. Overnight, we learned that China’s flash manufacturing PMI fell to 49.6 in January from 50.5 in December.

“The marginal contraction of January’s headline HSBC Flash China Manufacturing PMI was mainly dragged by cooling domestic demand conditions,” said HSBC’s Hongbin Qu. “This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth. As inflation is not a concern, the policy focus should tilt towards supporting growth to avoid repeating growth deceleration seen in 1H 2013.”

China is the world’s second largest economy, and it is a major trade partner with Europe.

France Is Still Ugly

Elsewhere in the euro zone, France continues to struggle. The country’s flash manufacturing PMI improved to 48.8, which was better than expectations. But as it is a sub-50 reading, it signals contraction.

“Weakness in the French private sector persisted in January, with output falling further, albeit at a reduced rate,” said Markit’s Jack Kennedy. “Moderate falls in new orders, employment and backlogs of work were also recorded, in each case across both the service and manufacturing sectors, pointing to a general softness that seems to show little sign of lifting.”

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