Unexpected EU Data Is A Pleasant Surprise

Industrial production in the euro zone unexpectedly picked up in April following strong gains in March. Also, Eurostat reported that the year-over-year decline in production was much smaller than expected in April, adding further signs to the thesis that maybe the euro-zone's economy as a whole is turning a corner.

April Gains
Industrial production in the euro zone rose 0.4 percent in April, much better than the expected drop of 0.2 percent. On a year-over-year basis, industrial production declined 0.6 percent, half of the expected 1.2 percent decline. Both data points add credence to the argument that the euro-zone economy bottomed at some point in the fourth quarter of 2012 or the first quarter of 2013 and that growth could resume as early as the end of this year.

Eurostat, the European statistics reporting agency, reported that industrial production rose in ten and fell in eleven of reporting member states. The highest increases were registered in Ireland (+3.0 percent), France (+2.3 percent) and Romania (+1.9 percent), and the largest decreases in Finland (-5.1 percent), the Netherlands (-4.3 percent) and Portugal (-3.6 percent).

March Revisions
March's strong gains were revised modestly lower however, taking some air out of the report. March's monthly gain of 0.9 percent was revised down from 1.0 percent. Still, the total monthly net beat (beat of expectations plus net revisions) comes to 0.3 percent, 0.5 percent more than the expected decline.

The annual figure for March was revised higher, though, signaling that the euro-zone's economy is in better shape than it was this time last year. Industrial production in March fell 1.4 percent from the same period a year ago vs. the prior reported 1.7 percent drop.

Trending Better
Industrial production in the euro zone has now risen for three straight months and for four out of the last five months. Notably, output from the capital goods sector has grown a cumulative 4.6 percent over the past four months and 4.5 percent over the past five months. Production in the energy sector has grown 3.6 percent since the start of the year as well.

The major economies in Europe have led the way. German industrial production grew 3.9 percent from February to April and 2.8 percent from the start of the year following a disappointing January figure. France has seen gains in production of 2.6 percent over the three month period and Ireland's output has grown 2 percent.

Mixed Reaction
European shares were mixed following the data. Spain's Ibex Index rose 1.69 percent, leading regional bourses, on hopes that a Spanish recovery is taking hold. French shares were also higher following the strong French industrial production figure while German and Italian shares sold off. German shares were lower following a weak 2-year bond offering and Italian shares dropped on slightly lower than expected inflation data.

The euro traded slightly lower on the session however the move is being attributed to a pull-back following the recent gains in the single currency. The EUR/USD declined 0.12 percent to 1.3297 and the EUR/JPY gained 0.45 percent to 128.41 while the EUR/GBP fell 0.28 percent to 0.8486.