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Euro Production Figures Vindicate ECB Decision

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Euro Production Figures Vindicate ECB Decision

Eurostat have just published the Eurozone Industrial Production figures for January. The key year on year figure is 2.1%, markets had been expecting this to be more like 1.9% as the previous reading was only 0.5%. Month on month this figure came in at -0.2%, however markets had hoped for a greater improvement of 0.5% following Decembers contraction of -0.7%.

This important data release, which measures factory and manufacturing output across the Eurozone, has been in negative territory for most of the past 2 years only turning positive towards the end of Q4 last year.

The Industrial Production numbers have strong connotations for inflation, rising production output across the Eurozone tends to be strongly correlated to rising inflation.

Today’s strong numbers then take on an important significance in light of the Eurozone’s recent flirtations with deflation. Last week the European Central Bank chair, Mario Draghi, assured the markets that inflation, or rather the lack of it, was not going to present a challenge to the Eurozone economy. Markets took this statement at face value and bought the Euro in a renewed show of optimism in the single currency bloc.

These Eurostat figures then are the first glimpse of the true inflationary picture since the ECB’s statement.

The Euro was understandable nervous this morning ahead of this release. The French Non-Farm Payroll numbers earlier today, although very slightly up on last quarter, caused a minor sell off in the single currency. Relief buying however is in evidence following the reassuring nature of the Eurostat figures, particularly as they provide early vindication of the ECB’s decision last week not to further loosen monetary policy in the Eurozone.

The Euro is likely to continue it’s attempts to climb above the key 1.40 level, there is not much in the way of data for the rest of today or tomorrow but Friday’s Eurozone employment numbers will provide further valuable insight into the pace of Europe’s recovery.

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