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Gesturing, not drowning?

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  • Euro area CPI was not supposed to matter. And then it did. The weakness of the inflation data (compounded by the more anticipated but ongoing weakness of the labour market) raises deflation fears and means we now forecast the gesture of a rate cut from the ECB.
  • China has offered more positive sentiment data as an antidote to Euro area problems, although the improvement in the headline PMI was not universally echoed in the details. Orders softened, though export orders accelerated. Overall it seems consistent with a stabilisation of manufacturing.
  • UK manufacturing sentiment has been relatively consistently strong as to absolute level, although the absolute level perhaps suggests that further acceleration is unlikely. Nonetheless the UK manufacturing sector has underperformed the service sector in the years since the crisis.
  • US manufacturing sentiment has acquired an aura of upside surprise following the very strong Chicago regional manufacturing data although the Chicago numbers were something of an outlier in the pantheon of regional sentiment surveys.

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