Eurozone’s manufacturing sector extends upbeat momentum into 2018, January PMI confirmed at 59.6

Eurozone’s manufacturing sector made a strong start to 2018. IHS Markit’s January final manufacturing Purchasing Managers’ Index for the euro zone was confirmed at 59.6, matching an earlier preliminary reading. PMI readings, though down to a 3-month low, remained close to record highs in January. PMI readings remained close to record highs in Germany, Austria and Ireland, and among the best for 17 and ten years in France and Spain respectively. Data showed that the bloc’s economic recovery still has momentum.

Details of the report signaled solid growth across the consumer, intermediate and investment goods categories. Continued strong expansions of both production and new orders boosted business confidence. Confidence improved in all nations bar Germany and Austria. Euro area manufacturing employment rose for the forty-first successive month in January as firms expanded capacity in line with rising demand.

Inflationary pressures picked up at the start of 2018, with both output charges and input prices rising at faster rates. Output price inflation accelerated to an 80-month high. A steep rise in oil prices during the month resulted in a further intensification of cost pressures. Shortages for some inputs as demand outstripped supply led to one of the sharpest lengthening of supplier lead times on record.

"With higher costs being increasingly passed on to customers, the survey sends a warning signal for a potential rise in future consumer price inflation,” said Chris Williamson, Chief Business Economist at IHS Markit.

The European Central Bank (ECB) last week held policy unchanged and withheld discussing winding-down its massive stimulus program, as inflation has yet to show any convincing upward trend. ECB policymakers have struggled for years to get inflation anywhere near their 2 percent target ceiling. Today's data will be welcomed by the ECB as it moves to unwind its super-loose monetary policy.

Euro extended gains against the dollar. EUR/USD was up 0.20% on the day, at 1.2437 at around 1050 GMT. Near-term bias remains bullish. 20-DMA at 1.2234 is strong support, break below could see minor weakness. EUR/JPY was up 0.62% at the time of writing, trading around 136.37 levels.

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