We will be getting the preliminary PMI data for September for France, Germany, and the overall Eurozone later today. In terms of key estimates, markets are looking for:
Manufacturing PMI: France 50.9 (prior 51.1), Germany 54.0 (prior 54.3), Eurozone 52.6 (prior 52.7)Services PMI: France 48.3 (prior 48.0), Germany 50.0 (prior 49.7), Eurozone 51.5 (prior 51.6)Composite PMI: France 48.7 (prior 48.5), Germany 51.8 (prior 51.8), Eurozone 51.7 (prior 52.0)
The headline numbers will tell us whether euro area growth is holding up, but I think the bigger market question is what the report might say about the ECB’s next move.
Markets are currently pricing roughly a 45% chance of another 25 bps rate hike in October, with a further rate hike fully priced only by December at the earliest. That leaves plenty of room for incoming data to move expectations.
And today’s PMIs could matter more through the inflation details than the business activity numbers themselves.
The first place I’d be looking at is input costs, particularly whether higher energy prices are feeding more broadly into business expenses. But even more important will be output prices, or what firms are actually charging customers. A renewed pickup there would suggest companies are successfully passing higher costs through, making the inflation shock harder for the ECB to simply look through.
Besides that, the services sector will be one that warrants attention in the big picture. More persistent price pressures in the services sector would point towards more domestically generated inflation, while employment trends can also offer clues on wage and labour-cost pressures.
That matters because the ECB has pushed back against the narrative of needing to tighten policy solely based on higher energy prices alone. Instead, policymakers have stressed on the need to assess the broader economy and inflation picture.
Taking all that into consideration, a modest PMI beat by itself may not be enough to really change the ECB outlook. But stronger activity combined with firmer inflation pressures could make October look considerably more live than it is now.
This article was written by Justin Low at investinglive.com.