Macro
Euro zone growth slows more than expected in October as France's private sector slips into contraction
The HCOB flash composite PMI fell to 51.9 from 53.1, missing forecasts, while French activity shrank and manufacturers reported the sharpest rise in energy-driven input costs since May.
HedgeWeekly News Desk ·
Business activity in the euro zone grew at a slower pace than economists expected in October. The HCOB flash composite purchasing managers' index fell to 51.9 from 53.1 in September, below a consensus forecast of 52.7, though it stayed above the 50 line that separates growth from contraction. The services index dropped to 51.7 from 53.0 and the manufacturing index eased to 52.4 from 52.9.
France was the main drag. Its flash composite index fell to 48.4 from 51.1, short of a 50.3 forecast, with both manufacturing (49.3) and services (48.4) below 50 and a gauge of 12-month business expectations at its lowest in six and a half years. Germany kept growing but more slowly: its composite slipped to 52.8 from 53.8, manufacturing rose to 54.2 for a ninth straight month of expansion, and services new orders stalled at 50.0.
Cost pressure moved the other way. Euro zone manufacturers reported the steepest rise in input prices since May, driven mainly by energy, as Brent crude traded at $113.73 a barrel early on Friday, according to Euronews. Chris Williamson of S&P Global Market Intelligence said the survey points to quarterly GDP growth of about 0.3%, slower than September's pace. The euro fell below $1.12 after the data.
For investors, the release sharpens the European Central Bank's problem ahead of its October 28-29 meeting, which follows two rate hikes this year: demand is softening while energy costs push input prices higher. France's weakness adds to pressure on its bonds, with the 10-year yield near 5.07% late on Thursday, about 173 basis points over Germany. Moody's was due to review France's credit rating on Friday evening, and the Federal Reserve announces its own rate decision on October 28.