• Prior 52.9
  • Manufacturing PMI 44.8 vs 45.6 expected
  • Prior 45.8
  • Composite PMI 48.9 vs 50.5 expected
  • Prior 51.0

The euro is meeting fresh lows for the day as this just confirms that Eurozone business activity contracted towards the end of Q3. The one-off boost in France in August has much to do with it but overall, manufacturing conditions also continue to suffer as services activity now beginning to stagnate. Euro area bond yields are also down on the day with 10-year German bund yields now down 3 bps to 2.16%.

Adding pressure to the ECB will be softer inflationary pressures in general in September. The rate of input cost inflation slowed sharply, easing to the lowest since November 2020.

HCOB notes that:

“The eurozone is heading towards stagnation. After the Olympic effect had temporarily boosted France, the eurozone heavyweight economy, the Composite PMI fell in September to the largest extent in 15 months. The index has now dipped below the expansionary threshold. Considering the rapid decline in new orders and the order backlog, it doesn't take much imagination to foresee a further weakening of the economy.

"Manufacturing is getting messier by the month. The recession has now dragged on for 27 months and even worsened in September. Looking ahead, the sharp drop in new orders and companies' increasingly bleak outlook for future output suggest that this dry spell is far from over.

"The manufacturing labour market is feeling the heat. Employers are cutting jobs at the fastest pace since August 2020. At the same time, employment growth in the services sector has slowed for the fourth consecutive month and is now nearly flat. We expect the official employment figures in the eurozone, which have remained stable so far, to worsen in the coming months, though demographic trends should provide more stability than in previous downturns.

"With the ECB closely watching the persistently high inflation in services, the news that both input and output price inflation has slowed down is certainly welcome. Add to that the deepening recession in manufacturing and the near-stagnation of the services sector, and the possibility of another rate cut in October could very well be on the table, even though this is not the expectation of the market yet.”