Summary:
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More weak PMI data from across EU
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EURUSD dips lower
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ECB decision 12:45 (BST). Final Draghi press conference to follow
In a week that has been dominated by politics, the only real important top tier economic releases have served to reaffirm the notion that the Eurozone economy continues to struggle. A series of industry surveys from across the continent have been released this morning and while on balance they were not really any worse than expected, this is more due to pessimistic forecasters rather than solid data.
The Eurozone wide manufacturing PMI came in at 45.7 for the current month, inline with the upwardly revised September reading which together are the joint lowest prints for this metric in 7 years - since the height of the debt crisis. Slowing activity in the manufacturing sector has been a theme for much of the year and is something of a global phenomenon, so this should come as little surprise but the main fear is that this slowdown begins to spread to the service sector. In this regard the Eurozone wide measure is still just about holding up ok but there are signs of softening in the bloc’s largest economy with the German services PMI falling to a 3-year low and the prior reading also seeing a sizable decline.
In terms of the market reaction it has been remarkably sanguine with the German Dax pulling back a little after earlier hitting a 16-month high while there’s been some small scale selling seen in the single currency. The muted response could be due in part to the ECB rate decision at lunchtime, but expectations are low for any strong messages on the policy front after the previous decision saw a new stimulus package unveiled.
EURUSD has pulled back a little since the data was released with price coming up short of the 200 SMA once more. Source: xStation
Draghi to bow out
In all likelihood the biggest takeaway from the ECB decision later will be that it marks the last meeting for president Mario Draghi with the Italian set to step down after 8 years at the helm. The standout memory for many will be the famous “whatever it takes” speech delivered less than a year into his tenure and while he still has his critics, there is little doubting that the Eurozone economy is left in a better state than where it was when he took the position. You could say that in the intervening years the Governing Council have done almost everything they can to promote growth with another round of quantitative easing set to begin next month but there is a feeling that monetary policy is starting to push up against its limits. When announcing the new easing measures last month, Draghi was keen to stress that the bloc now needs support on the fiscal front and it is no surprise that his successor Christine Lagarde is seen as politically savvy and therefore well placed to attempt to bring about this coordinated policy response.
