Euro-Area Economy Beating Expectations

The economic momentum of the euro area is outpacing expectations, with a gauge of its performance relative to analysts’ predictions now at a 2016 high. The Citigroup Surprise Index for the region, which measures how official data comes in relative to market expectations, has jumped since late September, underscoring better-than-forecast expansion in Germany and the so-far limited fallout from the Brexit vote on the single-currency bloc’s financial system. The index stands at a year-to-date high of 34.30, a level last reached in November. On Monday, a Purchasing Managers’ Index for manufacturing and services rose to 53.7 for October from 52.6 in September, the fast pace since the start of the year, according to IHS Markit Ltd, driven by a strong expansion in factory activity in Germany. The Munich-based Ifo Institute’s survey for October, which measures business sentiment in the country based on 7,000 responses from different sectors, rose to 110.5 on Tuesday, up from 109.5 in September and its highest level since April 2014, further underscoring increased optimism in Europe’s largest economy.  “Both the levels and the direction taken by the components confirm activity is accelerating,” Maxime Sbaihi, Bloomberg Intelligence economist, wrote in a note on Tuesday. “That’s also evident from other recent survey data from Germany, leaving financial markets with a strong impression of the economy as the end of the year approaches.” Pound’s Fall Meanwhile the pound dropped before Bank of England Governor Mark Carney answered questions in the House of Lords on the economic consequences of the Brexit vote. Sterling also weakened against the euro after UK Prime Minister Theresa May met on Monday with Scottish First Minister Nicola Sturgeon, who said afterward that the government’s negotiation stance was no clearer. Britons are more concerned with controlling immigration than maintaining access to the single market, a poll by Survation Ltd. showed. “Sentiment on sterling remains negative due to continued disruptive rhetoric around Brexit,” said Peter Rosenstreich, head of market analysis at Swissquote Bank SA. “Economic data out of the U.K. has not been terrible, and the market will want to hear what Carney says today. But at this point, it’s Brexit and political wrangling that’s driving pricing for the pound.” The pound fell 0.9 percent to $1.2127 at 2:30 p.m. in London, down more than 18% since the Brexit vote in June. Sterling depreciated 0.7 5 to 89.57 pence per euro.