Flash Comment - Euroland: Full steam ahead for the German locomotive

• The March flash PMI surveys from Germany were very strong. Manufacturing and Service PMI rose to 59.6 and 54.7 respectively; significantly above the consensus expectation. Thus manufacturing PMI now posts its highest reading since April 2000.

• The German subcomponents were also very encouraging reading. The new orders index rose impressively to 64.7 from 61.7, and it thereby stands out by showing the highest reading since the beginning of the survey in 1996.

• March Ifo also posted a positive surprise. Hence Ifo business climate rose to 98.1 from February’s 95.2. The expectations index rose more than expected too.

• In France, the manufacturing flash PMI rose to 56.3, well above the consensus expectation. The subcomponents, however, were more a mixed bag and the service sector is lagging behind. For Euroland as a whole, the manufacturing PMI rose to 56.3 from February’s 54.2 – another above consensus reading.

• The new orders index is now beginning to signal that ECB should start thinking about hiking. However, the monetary analysis still does not suggest any monetary tightening and ECB has explained it will implement its exit strategy from quantitative easing only very gradually. We expect a first rate hike from the ECB in Q1 11.