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Patris MACRO - Eurozone - Markit composite PMI declines in October and suggests a weak start to 4Q18

24 Oct 2018

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Eurozone: October’s flash Markit PMI indices

Bottom-Line: The October flash Markit composite PMI fell by 1.4 points to 52.7 (vs. consensus 53.9). The index is down by 6.1 points since the January high and reached the lowest reading since September 2016. Both manufacturing (-1.1 points to 52.1, vs. consensus 53.0) and services (-1.4 points to 53.3, vs. consensus 54.5) recorded declines in October. The Markit composite flash reading for October (52.7) compares to a 3Q18 average of 54.3, suggesting a slower pace of economic expansion at the beginning of 4Q18.

Considering data released for France, Germany and the Euro area, the composite PMI for the rest of the region also declined in October.

Companies’ expectations reached the lowest level in nearly four years, with a near 6-year low seen in manufacturing. The new orders sub index eased to the lowest level since August 2016, with manufacturing orders falling for the first time since November 2014. New export orders for goods decreased for the first time since June 2013.The employment sub-index reached the second-lowest reading for just over a year, easing to a 22-month low in manufacturing and a 3-month low in services. Price pressures remained close to a 7-year high. Output inflation remained close to the highest seen over the past 7 years, reflecting the services sector.

Details:

France: The Markit composite PMI index rose slightly in October (+0.3 points to 54.3, vs. consensus 53.9). The index has been broadly stable since May. Manufacturing and services showed divergent trends. Markit manufacturing PMI fell by 1.3 points to 51.2 (vs. consensus 52.4), while Markit services PMI rose by 0.8 points to 55.6 (vs. consensus 54.7), which is the highest reading since June. The Markit composite PMI flash reading for October (54.3) compares to a 3Q18 average of 54.4, suggesting that activity has stabilised at the beginning of the last quarter of 2018, even if still below the average recorded for the first 9 months of the year (55.8).

The details of the survey showed, in manufacturing, the output sub-index in contraction territory for the first time since July 2016, reflecting a decline in demand across the automotive sector. New orders across the French private sector accelerated in October, on the back of new business wins in the service sector. New export orders at manufacturing firms fell for the third time in the past four months. Job creation for the French private sector accelerated, with the sub-index reaching the strongest reading since April, driven by the service sector. The rate of input cost inflation slowed marginally since September, although it remained above the long-run average. However, output charge inflation remains modest. Business confidence eased slightly in October, reflecting the deterioration in business confidence amongst manufacturing firms to the lowest in 28 months.

Germany: The Markit/BME composite PMI declined by 2.3 points to 52.7 (vs. consensus 54.8), the lowest value since May 2015 (and below its long-run average), reflecting declines in manufacturing (-1.4 points to 52.3, vs. consensus 53.4, the weakest in almost four years) and services (-2.3 points to 53.6, vs. consensus 55.5, a five-month low). The flash reading for October (52.7) compares to a 3Q18 average of 55.2, suggesting an economic slowdown at the beginning of 4Q18.

The details of the survey stressed that the pace of job creation remains relatively solid. The new orders index showed the lowest print since June 2015. New order growth in services continued to slow and reached the weakest reading since May. Manufacturing order books contracted for the first time in almost four years, driven by fewer orders from clients in the car industry and softer demand from abroad. Manufacturers’ new export orders decreased for a second straight month. Business confidence reached a 4-year low (3-year low in services). On the price front, input costs rose sharply during the month (on the back of higher oil prices). Prices charged by services firms showed the steepest monthly rise since the survey began in mid-1997, while the increase in manufacturing prices charged to clients was the least marked since August 2017.

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