Business sentiment surveys ambiguous...
- The JP Morgan global all industry PMI dropped -0.3 in October to 50.8, with output decreasing in both the US and Japan and increasing in Europe. Somewhat concerning was that the employment PMI continued on its downward trajectory, reporting a reading of 49.8 (into contractionary territory).
- The final euro composite PMIs for October were revised upward to 50.6 (+0.4 from flash estimates, September: 50.1), reflecting upward adjustments in both services and manufacturing sub components. In the final readings, Spain fell over the month whilst Italy, Germany and France reported an increase, notwithstanding the fact that Germany is still in contractionary territory (48.9).
- UK service sector PMI for October was flat ahead of the upcoming election, reading 50.0 (September: 49.5, consensus: 49.7). Business activity, employment and business expectation indices improved over the month, whilst the employment sub-index remained in contractionary territory (48.8). Manufacturing PMIs reported last week showed a similar story, increasing over the month but producing a contractionary reading of 49.6.
- The US ISM non-manufacturing index rebounded more than expected in October, +2.1 to 54.7 (consensus: 53.5), after falling to a 3-year low in September. Business activity, new orders and employment all improved over the month, easing concerns that the deceleration in US activity was intensifying. New export orders declined over the month.
...but central banks still in easing mode around the globe
- The Bank of England kept rates on hold at 0.75% at their November meeting. The committee vote was more dovish than expected, with two of the nine members voting for an immediate rate cut as being necessary to push inflation up towards the 2% target, which the BOE now does not expect to be reached until 2021. The Bank confirmed that UK growth had “slowed materially”, and adjusted forecasts downwards to 1% in Q4 2019 and 2.1% by Q4 2022.
- The Reserve Bank of Australia, whilst keeping rates on hold, gave a clear dovish steer, and a handful of emerging market central banks delivered rate cuts.
...and rising trade optimism drove further equity gains
- Equity markets were up over the week, helped by reports of a pact between the US and China to roll back tariffs once a “Phase One” deal is agreed. The interim pact is expected to include cancellation of tariffs scheduled for 15 December on $156bn of Chinese imports including consumer items such mobile phones and computers. Pressure to conclude the trade negotiations will be mounting in the White House given the competing priorities of next year’s general election and the ongoing impeachment proceedings.