Euro-Zone January retail PMI rose to 44.0 from 41.4 in December. This is still below the 50 point no change mark, but the clear improvement over the month ties in with other better than expected confidence figures and suggests that the combination of lower inflation, stimulus programs and rate cuts are having a positive effect on confidence levels.

Meanwhile, Euro-Zone December M3 money supply growth decelerated to 7.3% y/y. This was even lower than our below consensus forecast of 7.4% y/y and brought the 3 months moving average, the ECB's preferred target, down to 7.9% (median 8.0) from 8.4% in the three months to November. The growth rate of loans to the private sector decelerated to 5.8% from 7.1%. This still looks relatively robust, but there was a sharp slowdown from the double digit growth rates seen earlier last year and it is clear that credit conditions are tightening and demand is falling as housing markets slow down. Small and medium sized companies are finding it difficult to find the funds to survive the rapid slowdown in demand. Data confirms that inflation pressures are receding, even though the annual rate remains far above the ECB's 4.5% reference value.

German Unemployment Rises as the Financial Crisis Drags on the Real Economy

German January jobless total rose by 56K. This is much higher than even our above consensus forecast for a rise of 35K and brought the sa jobless rate to 7.8% (median 7.7%) from 7.6% in the previous month. Employment dropped 10K in December, the second consecutive month of decline. Data confirm that the economic slowdown has reached the labor market with the pace of job cuts likely to accelerate in coming months.