• Composite PMI 52.3 vs 52.4 prelim

Little change to the initial estimates as this just reaffirms that the euro area economy has lost some momentum to start the new year. This is largely due to heightened restrictions amid the omicron variant, with the services sector most impacted. Of note, manufacturing output was seen at the fastest pace since September and that helped to temper with the slowdown.

Meanwhile, price pressures accelerated once again and is holding just below the peak in November so that is a little disconcerting. Markit notes that:

“The eurozone economy has slowed further in January after seeing growth weaken in the final quarter of 2021. Businesses are reporting subdued demand and ongoing constraints in terms of both labour shortages and raw material supply issues resulting from the pandemic.

“The slowdown coincides with virus-fighting containment measures having been tightened to the highest since last May across the eurozone amid the surge in COVID-19 cases linked to Omicron.

“Spain has been the hardest hit, falling back into contraction, while Italy has seen business activity stall, in both cases linked to declining service sector output. France is meanwhile recording the weakest expansion since last April.

“Germany is bucking the slowdown trend, however, providing a welcome ray of light to suggest that the impact of Omicron will be both shorter and less severe than prior virus waves. Having been hit to a greater extent by Omicron late last year, service sector activity is already picking up again in Germany and manufacturing output is surging higher.

“A key concern is that inflationary pressures continue to build, with soaring energy prices likely to add further to upward price pressures in coming months. Households are already being squeezed and firms face further cost rises. Tensions in Ukraine also pose a further downside risk to the outlook, with any escalation of the situation likely to further dampen business confidence.”

The dollar is keeping steadier so far on the day, holding its ground after a more sluggish week in general. Equities continue to perform well although there is a bit of a drag in tech futures after Facebook/Meta’s disappointing earnings. But overall sentiment is still holding up with Dow futures keeping flattish thus far.

Treasury yields seem like they’ve met a bit of a stall with 2-year yields holding below 1.20% and 10-year yields below 1.90%. We’ll have to see how things develop in the economy and inflation debate before finding any further conviction it seems.