While equity markets in the euro-zone have recently declined alongside those in the US, activity surveys continue to paint a very healthy picture of the economy. Indeed, the euro-zone Composite PMI increased to a 12-year high in January and, although it slipped last month, the EC’s Economic Sentiment Indicator remains very close to December’s 17-year high. Admittedly, falls in equity prices sometimes precede downturns in business sentiment. But we doubt that the recent falls signal trouble ahead. For a start, prices are still higher than a year ago. And the declines actually seem to have been triggered by prospects for stronger growth, particularly in the US, which might lead to tighter monetary policy.
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