Eurozone narrowly avoids recession

• Spanish CPI on the rise, but euro gains should be short-lived.

• Eurozone narrowly avoids recession.

• Big tech in focus, as Microsoft earnings headline.

European markets are pushing higher in early action today as traders overlook an unwelcome rebound in Spanish inflation. Instead, we are seeing markets react to a rather surprising raft of eurozone growth data that has seen stronger-than-expected Spanish, Italian, and eurozone GDP for the fourth quarter. Big tech remains the talk of the town today as markets gear up for Microsoft alphabet and AMD earnings.

This morning has seen Spanish inflation push up to 3.4%, marking the fifth consecutive reading above 3% for a country that saw CPI fall below 2% back in June. The euro strength seen in early trade does highlight the growing concern that this could signal a potential higher-than-expected eurozone inflation gauge on Thursday. Nonetheless, those reacting with disappointment to this figure should be cautious, as the monthly figure of 0.1% highlights how this is more about base effects than any notable pick up in the pace of Spanish CPI. Looking ahead, I expect to see a swift move back down towards the 2% target in the next three months.

The eurozone managed to narrowly escape a recession in the fourth quarter, with this morning’s surprisingly strong Spanish reading of 0.6% helping to prop up the region. While Germany has spent years supporting the wider region, the tables have turned as the likes of Belgium (0.4%), Spain (0.6%), Portugal (0.8%) are left propping up the eurozone amid a 0.3% decline German growth. For the ECB, today’s figure eases the pressure somewhat, but it is clear that the so-called soft landing being pursued by Lagarde has been somewhat softer than many would have liked.

Today represents the biggest day of fourth quarter earnings thus far, with Microsoft hoping to maintain its new crown as a $3 trillion business. Coming in the wake of yesterday’s bumper earnings and outlook from Super Micro computers (SMCI), there is a renewed feeling of optimism around the potential size and longevity of this AI boom. With tech stocks boosted by an SMCI upgrade that saw them revise their full year revenue outlook to $14 billion (from $11 billion), we can clearly see that businesses within the sector are seeing demand intensify as AI adoption grows. Microsoft shareholders will hope that the company’s early investment into AI continues to pay dividends, with record revenues of $61 billion expected.