EU PMI set to confirm Europe s economic relapse

Market focus turns to monthly reports on purchasing plans by Europe’s major businesses, in the wake of recent data showing an alarming slowdown, particularly in Germany.

The Composite Eurozone Purchasing Managers Index (PMI) will be released on Thursday 23rd at 0900 BST.

Produced by data provider Markit, the index is based on surveys of 5,000 euro area companies in the manufacturing and service sectors.

German slowdown sends worrying signal

German industrial data released this month, on both consumption and production trends, revealed a sharp deceleration in output from Europe’s largest economy.

It came after August figures showing Germany’s gross domestic product (GDP) declined by 0.6% in the second quarter, after growing by about 3% in the first quarter.

With Germany having propped up growth in the 18-country Eurozone in recent years, fears of a full-blown recession in the entire bloc have increased, amid lacklustre growth in Spain, Italy officially posting zero growth and France performing no better.

Additionally, Germany’s central bank, Deutsche Bundesbank, earlier this week said in its monthly bulletin poor third-quarter industrial production would drag on total economic output, whilst construction was also expected to ebb.

Thursday’s report will be released after monthly PMIs from individual EU members on the same day.

The market tends to concentrate on the overall ‘Composite’ reading which comprises representative data from single countries.

European business spending is being cut

Thursday’s Composite PMI release will be an initial reading of this month’s survey data, known as the ‘Flash’ release.

It may be revised in an additional PMI report for October, due early next month.

As usual, market attention will fall on three ‘headline’ components, the Composite, Manufacturing and Services indices.

Consensus forecasts compiled from Thomson Reuters polling suggest the Composite Index will fall to 51.7 from 52.3 in September, with estimates ranging between 51.42 and 52.1.

The Manufacturing component is seen at 49.9 from 50.5, with estimates falling between 48 and 51.

The Services sector is seen weakening to 52 from 52.8, judging by estimates between 49.8 and 52.6.

The currency market will be on watch for any divergences from forecasts, with the euro against the dollar, the most liquid pair against the single-currency, at risk of breaking downwards out of its range so far this week–1.268-1.274, in the event of any worse-than-expected readings.

The ‘front-month’ German government bond future contract, expiring in December, could rebound and head back to highs above 152, last seen in the middle of the month.

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