• Today we saw a batch of interesting data from Euroland – namely Flash PMIs, German Ifo and industrial new orders. The data were generally strong both on headline and detail and confirm that the recovery is on track with France pulling ahead.
  • The PMI new orders index is currently indicating GDP growth at just below 2% q/q annualised. This is very much in line with our expectation of growth at 1.9% q/q annualised in Q3. Given the strong industrial orders data (2% m/m in August) we would not be surprised to see even higher growth in Q4.
  • The PMI employment index is currently indicating unemployment growth of about 0.1 percentage point per month. Several indicators (including composite PMI) are signalling labour market stabilisation in early-2010, which is an important precondition for private consumption to recover and the rebound to become more sustainable.
  • The current level of new orders is consistent with the ECB being on hold. If new orders hits 55.5 this will be a strong signal that the ECB should soon deliver a 25bp hike. The strong euro could delay the ECB hiking cycle while higher oil and food prices are pulling in the other direction.
  • We expect to see continued increases in PMI and Ifo in the coming months, although the speed may soon begin to taper off. The OECD leading indicator signals that all confidence indicators can continue to rise strongly. We also expect that new orders will continue to increase strongly and that we will see strong production data.