Neil DennisWhile the eurozone purchasing manager surveys were a little weaker than expected, they still indicated strong levels of growth that will enable businesses to endure any negative impact from upcoming tapering by the European Central Bank.
Following the surveys for October business activity which, including both manufacturing and services, appeared to slow a little from September levels, analysts were quick to point out that they remained robust – particularly among manufacturers in the core countries of Germany and France.
Overall, the composite purchasing manager index (PMI) for October eased to 55.9 from 56.7 in September, but employment remained strong and there were indications that input price rises were starting to take a firmer grip.
Economists eyed the data with European Central Bank monetary policy in mind and the broad assessment was that business activity remained strong enough to withstand any tapering of monthly asset purchases under the Bank's quantitative easing programme.
The analysts say. . .
Pantheon Macroecononmics - Claus Vistesen: "A hit to the services PMI was the primary driver of the lower headline in October, offsetting an increase in manufacturing. Overall new orders growth remained robust, however, propelling job growth to its highest pace since Markit started collecting the data in 1997.
"The dip in the services index to 54.9 has to be watched for further weakness, but for now it signals robust growth in the private sector.
Chart reproduced courtesy of Pantheon Macroeconomics"In addition, strong export orders continue to support activity in manufacturing. The PMI has been too optimistic on GDP growth recently, but the chart shows that the headline index signals strong and stable momentum."
ING - Bert Colijn: "While the drop in the composite PMI could point to a somewhat slower GDP growth in the last quarter of the year, it does seem that growth will remain healthy and that the economy could weather slower asset purchases by the ECB.
"With new orders increasing and export demand picking up, the underlying detail provided enough encouragement for another robust start to the quarter."
"The jump in selling prices is in line with other recent surveys about price growth, adding to the view that pipeline inflation pressure is undoubtedly building. The question remains of course how quickly this will translate into higher headline inflation figures, but it does build confidence that the inflation target is reachable in the medium term.
"This is in line with the message of ECB speakers in past weeks, which shows that the ECB has confidence in its target ahead of the tapering decision of coming Thursday."
SEB - Robert Bergqvist, chief economist: "We reiterate our off-consensus view that QE will be extended by six months to June 2018 and ‘re-calibrated’ to a monthly volume of €40bn.
“In order to prevent a bearish market reaction (e.g. euro appreciation) Mario Draghi will strike a dovish tone in the press conference and emphasise that purchases could continue beyond mid-2018 ‘if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim’.
"He will also point out that a QE extension into the second-half of 2018 appears likely against the backdrop of the ECB’s own inflation trajectory."
City Index - Kathleen Brooks: "Fairly decent October PMI data for the Eurozone has boosted the euro, which is up some 0.3% since the data release.
The euro-dollar pair is basically treading water until traders hope to get some real direction from the ECB later this week."
