US: Surprise rise in Chicago PMI increases uncertainty on today??™s ISM

The Chicago PMI unexpectedly surged to 61.7 in March from 47.9 in February, whereas only a slight rebound to 49.3 was expected. The Chicago PMI is notoriously volatile and therefore we would be very careful to draw conclusions out of the rebound for today??™s ISM outcome. The more as the details provided a mixed picture, with new orders (72.2 vs. 48.7), order backlogs (54.0 vs. 44.3) and production (64.9 vs. 51.2) surging, but employment falling further below the 50 mark.

The personal income and spending data for February showed a monthly rise of 0.6% compared to an expected 0.3%. The core PCE deflator, the preferred inflation measure of the Fed, rose slightly stronger than expected at 0.3% M/M and 2.4% Y/Y. The Fed??™s comfort zone for this series is between 1-2%.

The final reading of the Michigan consumer confidence survey came out at 88.4 compared to the 88.8 preliminary reading. The further fall was mainly due to lower expectations 78.7 vs. 79.3, while the current conditions were almost unchanged at 103.5 vs. 103.6.

February construction spending rose 0.3% M/M following an upwardly revised ??“ 0.5% M/M in January. It was the first noticeable increase since April last year. The rebound was mainly due to non-residential construction spending (1.5%), while residential spending remained in the doldrums falling 1% M/M.

EMU: Economic confidence rises to new cycle high

In the euro zone, the EU Commission confidence indicators unexpectedly showed economic confidence rising to a new cycle high in March at 111.2 up from 109.7 in February. The business climate indicator stabilized at a high 1.55. The rise in confidence was driven by the industrial, services, consumer and retail sectors. Only in the construction sector confidence stabilized. As such, the confidence indicators confirmed that the euro zone economy has maintained its strong growth momentum well into 2007. The price trends were a bit mixed, as selling price expectations rose in the industrial sector, but fell among consumers.

The euro zone flash CPI rose as expected to 1.9% Y/Y in March from 1.8% Y/Y in February. The current rally in oil prices may however bring euro zone headline inflation earlier than first expected back above the 2% level. A development, that would raise inflation concerns at the ECB.

In France, Q4 GDP growth was upwardly revised from 0.6% to 0.7% Q/Q. The annual growth figure came out at 2.5% Y/Y compared to the previous estimate of 2.5% Y/Y.

In Germany, monthly retail sales growth rebounded in February to 0.9% M/M from a very weak VAT-affected fall of 4.3% M/M. Annual growth however remained unchanged at ??“1.6% Y/Y. The improvement in the labour market and the rise in the retail PMI suggest consumer spending will improve further in the coming months.