Euro gains despite another weak PMI reading
Despite another weak PMI reading for the Euro Area, the euro managed to rally yesterday. The currency spent much of the week sliding to the dollar and dipped down below $1.0780 at times before rallying back to around $1.0820 currently. This came despite the ‘flash’ October PMI composite reading suggesting activity is contracting in the Euro Area for a second month in a row. The single currency is also up a touch versus sterling, though not by much, and has edged up to 83.4p. Sterling remains below $1.30 to the dollar, at $1.2960 this morning.
In equities markets, the S&P 500 gained 0.2% for the day, ending a run of three days of losses. The index was helping by Tesla surging 20% following a better then expected earnings report. The FTSE moved up marginally, up 0.1%, and the Eurostoxx gained 0.3% reversing a similar fall on Wednesday. In Government bond markets, US 10-year yields fell about 3bps, to around 4.2% while equivalent German 10-years were down 4bps to close to 2.25%. UK yields rose however, up 4bps, to close in on 4.25%. 10-year yields, everywhere, are ticking down on the open this morning.
The October ‘flash’ composite PMI reading for the Euro Area was 49.7, the second month in a row the survey has indicated that activity is contracting. The weakness in manufacturing continued, coming in at 45.9, which the small expansion in services, 51.2, was not enough to offset. Furthermore, new orders declined for a fifth consecutive month and firms cut employment for a third month in a row and at the fastest rate since the end of 2020. The two largest Euro Area economies, France (47.3) and Germany (48.4) both posted contractions, the main source of the damage to the overall PMI reading. Overall, the survey indicates not only continued weakness in the Euro Area currently but with a weak outlook in the short term at least.
In contrast. the US composite PMI indicated a solid expansion in activity. The index rose to 54.3 in October, from 54.0 in September. Similar to the Euro Area, the manufacturing PMI was poor, at 47.8, but this was more than countered by a 55.3 reading in services, spurred by faster consumer spending in the US than compared to the Euro Area. The UK PMI reading were more a middle ground, with the composite reading coming in at 51.7, balanced between soft expansions in services, 51.8, and also manufacturing, 50.3.
Bank of England MPC member Mann said yesterday that she fears the BoE may have cut rates prematurely. She said that services inflation still has ‘a long way to go’ despite recent cooling while she thinks there may still be structural relationship between wages and prices that is still ‘persistent and embedded’ and that should have been ‘purged’ before any rate cuts. Mann is a hawk on the Committee, and voted again the interest rate reduction in August, and on the basis of these remarks is unlikely to back further cuts. In contrast Governor Bailey of the BoE, said that inflation had cooled faster than expected hinting that the door was open to further cuts, though he too warned that services inflation has to ‘come down further’.
On the agenda today, we get the IFO survey in Germany and ECB inflation expectations. In the US, we get durable goods orders for September.