Strong German Growth Weighs on DAX as FTSE Outperforms

European stock markets are narrowly mixed, with the FTSE 100 outperforming again and up a modest 0.09% as the pound continued to retreat. The DAX meanwhile is lower after Asian markets mostly headed south amid concerns of overbought conditions and investors moved back into yields after Wednesday’s sell off. The Italian MIB outperformed and managed to rise after Thursday’s bond auction got out of the way and U.S. stock futures are moving higher, as are S&P/TSX 60 futures despite reports that Canadian official see increased odds that the Trump administration will leave Nafta. European and Asian indices remain at high levels and amid warnings of overheating investors will need fresh impetus to move things higher, especially as the reality of increasingly less central bank support is starting to sink in. Earnings releases from the like of JP Morgan Chase and Wells Fargo Friday may help markets to gain traction.

Eurozone industrial production growth accelerated in November, with the 1.0% month over month growth rate topping consensus and leaving the annual rate at 3.2% year over year, down from 3.9% year over year in the previous month, but still suggesting ongoing strong growth. The manufacturing sector in particular has been outperforming and producers remains sufficiently optimistic about the outlook to expand staff levels, according to PMIs, while  German GDP numbers showed strong investment growth in 2017. A still very robust recovery then that is also evident in marked improvements in jobless numbers across the Eurozone, which in turn should help to lift wage growth this year and see the ECB phasing out net asset purchases in Q4 this year.

German 2017 growth accelerated to highest rate since 2011

German growth reached 2.2% year over year in real terms, slightly less than the consensus estimate, but adjusted for calendar factors growth was a whopping 2.5% year over year as expected, after 1.9% year over year for both readings in 2017. Once again growth was primarily underpinned by domestic demand, with private consumption up 2.0%, and investments rising 3.0%, as machinery investment jumped 3.5%. Net exports contributed 0.2% points to the unadjusted annual rate, gross fixed capital investment 0.6% points and private consumption 1.1% points. So not the typical export led recovery, although after a negative contribution of -0.3% points last year, the external sector is also picking up amid strong global growth. Looking ahead orders suggest ongoing growth momentum and wages are also expected to pick up as the labor market is looking increasingly tight and the ECB’s policy is looking too expansionary for Germany.