Strong German Production Buoys the Dax

European stock markets are narrowly mixed. The Spanish IBEX is outperforming as markets buy into dips and start to discount Catalan secession risks, although the situation remains volatile. The DAX is moving sideways at very high levels, with strong production data at the start of the session not sufficient to push the index above the 13000 mark for the first time. The Euro Stoxx 50 is unchanged and the FTSE 100 down with a stronger pound weighing on U.K. markets. This followed a largely positive session in Asia, where the Hang Seng underperformed as Chinese markets reopen after a week-long holiday and the Shanghai Composite rallied in catch up trade. Japan, South Korea, and Taiwan were closed for holidays. Politics continue to hang over markets, amid uncertain election results in New Zealand, a diplomatic spat between the U.S. and Turkey and Catalonia’s secession bid in Spain, just the tip of the iceberg.

German industrial production much stronger than anticipated. Production rose 2.6% month over month in August, much more than expected, although not a total surprise after the strong orders number last week and the annual rate rose to 4.7% year over year from an already strong 4.2% year over year in July. Production and orders numbers can often be volatile over the July/August period due to the different timing of holidays across the German states. And while orders and survey data confirm that the recovery continues, the three months trend rate slowed down to 0.9%, from 1.1% in the three months to July and a marked slowdown from the peak of 2.5% in the three months to May. Ex-construction the slowdown is much more modest however, and it is mainly the construction sector that has been hit with a drop of -1.2% month over month in August. Manufacturing and mining actually jumped 3.2% month over month.

Sentiment Improved in October

Sentix Eurozone investor confidence improved again in October. The overall index rose to 29.7 from 28.2 in September with the current condition reading as well as the expectations reading picking up this month. Further signs that the Eurozone recovery continues to broaden and strengthen, which will add to the arguments of the hawks at the ECB.

The Bank of France business sentiment unchanged at 104. The October production outlook though improved to 9 from 3 in the previous month, and October projections for services and construction activity also improved. This ties in with robust PMI readings and confirms that the recovery remains on track, as Macron tries to continue with his ambitious reform agenda.