Eurozone PMIs

October 28, 2019

Flash October purchasing managers indices (PMIs) for the Eurozone were released last week, suggesting that the single currency area is still struggling to grow. Underlying the PMIs was particularly weak data from the German manufacturing sector, with a reading of 41.9. Anything under 50 indicates a contraction in activity. Nevertheless, with the dominant service sector for the area coming in at 51.8, the overall picture pointed to flat growth. This data came out shortly before, and will have informed, the European Central Bank (ECB) interest rate decision, Mario Draghi’s last. While the vote for maintaining rates at -0.5% was largely expected, the reiteration of the expansion of quantitative easing in November and the potential for more interest rates in the future gave hope to markets.


Brexit Delay

After another momentous week for Brexit developments, it appears highly likely that the UK will not leave the EU on 31st October. While the exact length of the extension is still being negotiated between EU leaders, they have agreed in principle that one will be granted. Furthermore, dependent on the length of the deal, it is likely that the UK will have an election. The proposed date is 12th December. There is still uncertainty over the final outcome, however, with a deal on the table and an extension likely, those fearing a no-deal will have some relief, at least in the short term. As such, the Sterling has managed to hold onto most of the gains seen over the last few weeks, even with the prospect of an election.


UK Government Borrowing Increases

The latest figures for the government finances in September came out last week showing that borrowing rose by £0.6bn on the same month last year. The first increase in five years. This brought the borrowing for the financial year to date to £40.3bn, £7.2bn more than for the same period last year. Nevertheless, the debt as a percentage of GDP fell 1.2%, to 80.3%. With the upcoming budget on 6th November, the higher borrowing figures will constrain the ability of the chancellor to present major giveaways. The suggestion is that the focus will be on increasing spending on infrastructure, schools and policing rather than tax cuts. However, there have been repeated promises to simplify the tax system, so there may well be some changes. Nevertheless, with the outcome of Brexit still undecided, the government may well go into November with several different possible budgets to deploy.


Market Data

  % 1w* % 1m*
UK 2.45% -0.09%
US 1.73% -2.36%
Europe ex UK 1.49% -0.64%
Japan 1.96% -2.41%
Emerging Markets 1.68% -1.23%
Oil 5.03% -3.01%
Gold 1.29% -4.39%