On Monday, data for the Eurozone was released showing that the region’s economic activity has slowed. As we’ve mentioned previously in relation to PMI, a figure below 50 indicates a contraction while figures above point to an expansion. Manufacturing PMI fell from 45.8 to 44.8 in September, which marks its lowest figure in nine months. Meanwhile, PMI for the service sector remained in expansion territory, but it did show signs of weakening from the 52.9 reading in August that was boosted by the Paris Olympics. This data weakened the Euro for a short time following its release and may constitute further evidence the ECB needs to consider lowering interest rates again this year.
On Tuesday, the People’s Bank of China announced its biggest stimulus package since COVID-19. The measures include things such as reducing the reserve requirement by half a percent for banks (allowing them to increase lending), cutting interest rates on existing mortgages and reducing the deposit amount needed to buy a home. These initiatives seek to provide a needed boost to the economy, seeking to help the region achieve its own growth target of 5% by the end of this year. The market was buoyed by the announcement, with the Hang Seng jumping 4.1%, even as economists cautioned that the latest package should just be one of many that the government introduces to boost momentum.
Also on Tuesday, Bank of England governor, Andrew Bailey, stated in an interview that he was ‘very encouraged’ that inflation seemed to be on a downward trajectory and that he foresees the path for interest rates to go the same way, but gradually. The current CPI rate for the UK is 2.2%, while interest rates are set at 5.00%.
PMI data for the UK showed that businesses reported a slowing of activity this month. While the composite figure for both manufacturing and services declined, it remained in expansionary territory and is thought to track with the economy growing at a quarterly pace of 0.3% (smaller than the rate revealed earlier this year but nevertheless stronger than a considerable portion of the past two years).
Over in the US, The Conference Board stated that consumer confidence fell in September to 98.7 from an upwardly revised 105.6 the previous month. Jerome Powell accompanied the Fed’s latest rate cut with a statement that policymakers are committed to maintaining a low rate of unemployment. The percentage of consumers who were surveyed and declared that jobs were ‘plentiful’ dropped to 30.9% from 32.7% in August. In this light, Powell’s comment will likely be welcomed by consumers and may be one that boosts sentiment.
Still to come this week we have Tokyo’s CPI, Eurozone sentiment index, and US PCE.
Nicola Tune, Portfolio Specialist
