European Equity Benchmarks Close Higher

The broad-based major European indices closed sharply higher in Tuesday trading as a broad market rally boosted the three major markets. In economic news, the IHS Markit Eurozone PMI Composite Output Index edged lower in January, falling for a fifth straight month to register its lowest level in more than five years. After accounting for seasonal factors, the index slid to 51.0 in January from 51.1 in December, indicating only weak growth in business activity.

Activity weakness was principally centered on France and Italy. Output in France was down for a second consecutive month, and at the fastest rate in more than four years. And the Italian private sector output deteriorated for the third time in four months and to the greatest degree in over five years. Manufacturing was the primary source of output weakness during January, while service sector growth was unchanged since December at around a four-year low. Production in manufacturing rose only slightly and at the weakest rate in nearly six years of growth. “The eurozone has started 2019 on flat note, with growth close to stagnation amid falling demand for goods and services,” said Chris Williamson, chief business economist at IHS Markit. “The PMI indicates that GDP is growing at a quarterly rate of just 0.1%, setting the scene for the region’s worst quarter since 2013. Such a weak start to the year would mean the current consensus forecast for 1.5% GDP growth in 2019 is likely to be revised lower, and hence lead to more dovish signals from the ECB.”

January data indicated a renewed loss of momentum for the UK service sector, with a decline in incoming new work reported for the first time since July 2016, according to IHS Markit. Subdued demand conditions meant that business activity was broadly flat at the start of 2019, while concerns about the economic outlook weighed more heavily on staff recruitment.