European PMIs: Better on the continent, but the UK drops to lowest since aftermath of Brexit vote
- The composite PMI for eurozone dropped in November, from 50.6 to 50.3. The manufacturing PMI improved over the month, to a reading of 46.6 (October: 45.9, consensus: 46.4), albeit remaining in contraction territory. Services were weaker than expected over the month, reading 51.5 (October: 52.2, consensus: 52.4).
- France and Germany both reported an increase in their composite readings, driven by improvements in the manufacturing sector (+1.2 points and +0.4 points respectively). Economists are reading into the improvements in manufacturing data as a possible signal that the industrial sector weakness could be bottoming out.
- Flash PMIs for the UK in November signalled expectations of contraction in the coming months. The Composite Output Index read 48.5 in November (October: 50.0), against expectations of an increase over the month. The weaker reading was driven by the dominant services sector, which fell to a 3-year low of 48.6 (October: 50.0, consensus: 50.1), not helped by a decline in export orders for the third consecutive month. Service providers are attributing the slowdown to subdued consumer spending and continued political uncertainty.
- The manufacturing sector was also weaker over the month (reading 48.3), with reports highlighting a reversal of stockpiling ahead of the 31 October Brexit deadline. The market report paints a much gloomier picture for GDP growth in the coming months than the 1% annual growth that the Bank of England MPC are forecasting coming up to the end of the year.
Minutes of October FOMC meeting emphasise switch to "data dependency"
- The minutes of the Fed meeting 29-30 October reiterated the shift to “data dependence” since the last mid-cycle rate cut in October (-0.75% in 2019). Those voting in favour of a further rate cut at the meeting argued that this would better align the Fed Funds rate with the current yield curve. Chair Powell restated the high bar that would need to be reached in order for the committee to reconsider raising the rates again – a significant and sustained pickup in inflation.
- The market pricing is for one more Fed rate cut next year; clearly a breakdown in US-China trade negotiations would require the delivery of several more besides.
Market price action edgy and irresolute as uncertainty on trade negotiations grows
- Markets traded sideways as rumours circulated that a “Phase One” agreement on trade between the US and China may not be reached this year (although this ought to allow the tariffs on imports from China currently due to be enacted by the US on December 15th to at least be delayed.
- Havens (USD, JPY, gold) were somewhat stronger over the week and US Treasuries rallied modestly.