Euro zone business activity slows to four-month low on cost pressure

what happened

The preliminary private sector PMI for the euro zone came in at 51.9 in October, down from 53.1 in September. That is its weakest reading since June and below all forecasts in a Reuters poll, which had expected 52.7. A reading above 50 signals growth.

The main driver was faster cost growth. For a second straight month, firms paid more for energy, fuel and transport, partly because of the Middle East war. Selling prices rose more slowly than in September, which squeezes margins. In France, activity unexpectedly shrank amid political uncertainty and higher government borrowing costs, and business confidence there fell to its lowest level since 2012, excluding the pandemic period.

New orders grew at their slowest pace in the current four-month expansion run. New export orders rose for a third month in a row, but employment barely increased.

why it matters

The key signal for markets concerns the ECB. According to a Reuters poll, the central bank will hold its deposit rate at 2.50% next week and may raise it by 25 basis points in December, as inflation runs close to double its 2% target. Weak growth alongside persistent inflation creates a mixed picture for the euro and feeds expectations of tighter policy.

market impact

Euro and European stocks: weak data and margin pressure weigh on EUR/USD and the Euro Stoxx 50

tags

instruments