Eurozone manufacturing sector is showing resilience. The dollar continues to be under pressure

Industrial production in the two largest economies of the Eurozone proved to be stable in February, despite continued quarantine in both countries. According to IHS Markit, economic activity has been growing for the eighth straight month in Germany, with production growing at the fastest pace over the past three years.

French companies reported the fastest growth since early 2018, although the economy of the private sector, taken as a whole, has contracted. Plants in both countries have came up with increased supply restraints: Germany reported record delays in the delivery of components due to shortages of raw materials and limited transport capacity.

The Eurozone manufacturing index jumped to 57.7 in February from 54.8 in January, beating forecasts of 54.3. The data shows the strongest growth of manufacturing activity for 3 years, fueled by a sharp influx of news business. Countries other than Germany and France recorded the strongest industrial production growth since August last year. In addition, employment rose for the first time since April 2019. Growing demand and limited supply contributed to further noticeable price increases during the month.

It is the rise in prices that is now showing the greatest acceleration with PMI indices. Mainly due to the inflationary component, production indices show a sharp acceleration around the world, although this doesn’t always reflect the rapid growth of economic activity. Investors have fears that inflation will be important for stocks again. With the improvement of the economic outlook and new fiscal stimulus on the horizon, the disturbance about inflation is intensifying. It’s not clear yet how companies will cope with this phenomenon.

Against this background, investors take a wait-and-see attitude. The stock market is decreasing and bond yields are increasing. Benchmark treasuries hit February 2020 levels on Friday, increasing up to 1.39%.

Main market quotes:

S&P 500 (F) 3,864.12 -38.88 (-1.00%)

Dow Jones 31,494.32 +0.98 (+0.00%)

DAX 13,828.40 -164.83 (-1.18%)

FTSE 100 6,556.05 -67.97 (-1.03%)

USD Index 90.517 +0.154 (+0.17%)

• – German IFO Business Climate Index at 11:00 (Feb) (GMT+2).

by JustMarkets, 2021.02.22

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.