Eurozone business activity rises in Dec

Pedestrians shelter under umbrellas as they pass a jewellery store in Hamburg, Germany. Markit Economics said its Eurozone Composite Purchasing Managers Index (PMI) for December rose to 52.1 from 51.7 in November.

AFP, ReutersLondonBusiness activity in the 17-nation eurozone ticked up in December, but the recovery is uneven and weak French data are of particular concern, a key survey showed yesterday. Markit Economics’ said its Eurozone Composite Purchasing Managers Index (PMI) for December rose to 52.1 from 51.7 in November. “The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track,” said Chris Williamson, chief economist at Markit. “The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth.” However, the growth is uneven, with France posting a fall for the second month running, while the EU’s economic engine Germany powered ahead. “It’s the unbalanced nature of the upturn among member states that is the most worrying,” said Williamson. “France looks increasingly like the new ‘sick man of Europe’, as a second successive monthly contraction may translate into another quarterly decline in GDP (gross domestic product), pushing the country back into a technical recession,” he noted. “In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5%.” Growth was also variable across sectors.Manufacturing led the upturn with output rising for the sixth straight month. For services however, the rate of growth slowed for the third consecutive month. “There’s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra-accommodative for quite some time,” Williamson said. Capital economics analyst Ben May said however that latest figures “provide more evidence that the eurozone economy continued to grow at a feeble pace in the latter stages of the year”. “Accordingly, pressure will remain on the ECB to take more decisive action to support the economic recovery next year,” he added. Separate data released by the European Union showed that the eurozone recorded a trade surplus of €17.2bn ($24bn) in October, up sharply from €10.9bn in September. The 28-nation bloc, meanwhile, posted a surplus of €4.3bn in October, reversing a deficit a year ago of €10.2bn.Meanwhile, the euro rose against the dollar yesterday as data came out, while uncertainty over the Federal Reserve’s stimulus kept investors wary of the US currency.The euro rose to $1.38. The single currency had earlier dipped to around $1.3745 after separate data showed French private-sector activity unexpectedly slowed.“Admittedly the French numbers were weak, but both the German manufacturing PMI and the composite eurozone numbers were better than expected and that is a relief for the euro,” said Jane Foley, senior currency strategist at Rabobank. “They could have been a lot worse.”The data was not good enough to push the euro to the two-year high around $1.3833 it reached in October, and Foley said a lot would depend on what the Federal Reserve does this week.The odds are the Fed’s rate-setting committee will make no major policy change when it meets today and tomorrow. But most recent US data suggest the Fed will begin to wind down its bond-buying programme sooner rather than later.However, US Treasury bond yields eased yesterday, dragging the dollar index down 0.35% to 79.936“If the Fed refrains from tapering we could see some pressure on the dollar,” said Alvin Tan, currency strategist at Societe Generale.Highlighting nervousness in the market, euro/dollar one-month implied volatility, a gauge of how choppy a currency pair is likely to be, rose to its highest in five weeks at 7.11%.The euro has risen in recent weeks, tracking higher eurozone money-market rates. As eurozone banks repay cheap loans to the European Central Bank, the ECB’s balance sheet should shrink, putting further upward pressure on rates. In contrast, the Fed, for now, and the Bank of Japan are printing vast sums, weakening the dollar and the yen.The yen rose as investors bought the safe-haven currency after tepid Chinese manufacturing data fuelled concern about recovery in the world’s second-largest economy. An uptick in Japanese business sentiment supported the yen at the margins, but most analysts said the gains would probably not last.“The central bank is printing money and the majority of analysts even expect it to increase the volume of bond purchases in 2014,” Lutz Karpowitz, currency strategist at Commerzbank wrote.“The yen has everything required to come under further pressure, and Tokyo also welcomes a weak yen.”The dollar was down 0.2% at ¥103.04. The euro was flat at ¥142, off a five-year high of 142.82 yen hit last week.Data from a US financial watchdog showed speculators’ net yen short positions were near six-year highs last week.