- With concerns about the pandemic having increased significantly over the past month prompting tighter restrictions in several member states, today’s flash October PMIs inevitably pointed to a weakening in economic activity. Indeed, broadly in line with expectations, the euro area composite PMI fell 1.0pt to a four-month low of 49.4
- ahead of next week’s ECB policy meeting, the survey should have added to fears on the Governing Council that its latest economic projections, released last month, were too optimistic, with the second wave of Covid having increased further the likelihood that inflation will return sub-target for the foreseeable future.
- Perhaps inevitably, the deterioration in the PMIs was led by the services sector, for which the euro area activity index fell 1.8pts to a five-month low of 46.2 with Markit citing particular new weakness in the hard-hit hospitality sector […] it was no surprise that the French services activity PMI fell further below 50, dropping 1.0pt to a five-month low of 46.5. The second wave has been particularly severe in the euro area’s second largest member state, with the daily number of new cases rising above 41k yesterday. And with restrictions on activity, particularly affecting hospitality and leisure, having already been tightened over recent weeks, curfew restrictions between 21.00 and 06.00 were extended yesterday to affect some 46 million people.
- The picture in the manufacturing sector, however, was much less concerning. The euro area manufacturing output PMI rose 0.7pt to 57.8, the highest in 32 months and consistent with solid ongoing recovery. Admittedly, that masked significant variation among the member states. The French PMI for the sector edged down 0.2pt to a relatively subdued 51.0
READ Risk assets are pricing in a more rapid economic recovery AND infinite stimulus; the result: people keep buying at record highs. This is called absurdity!