This week, investors mulled over multiple PMI datasets, most notably from the UK and US. A PMI below 50 indicates a contraction, while anything above indicates an expansion. In the UK, the preliminary reading for the services sector dipped slightly to 49.2 in October 2023 from 49.3 the previous month. Measurement of new business in particular illustrated a decline, however decreases in levels of employment showed marginal improvement. Although not hit as hard overall, manufacturing PMI rose to 45.2 from 44.3 – expanding but still within contraction territory. The reading paints a bigger picture about the uncertain outlook for the economy going forward amidst higher borrowing costs and weak consumer confidence which will perhaps be taken into account by the Bank of England when they meet to decide on interest rates next week.
Adding fuel to the idea that the US will experience a soft landing this year, the world’s largest economy saw manufacturing PMI data come in this month at 50.0, surpassing economists’ expectations of 49.5 and up from September, when it was 49.8. Services data showed also showed a moderate improvement, from 50.1 to 50.9. Illustrating that the region is strong – and persistently so – the data showed that manufacturers experienced the fastest rise in new orders in over a year and that services are ticking up despite higher interest rates still filtering through the economy.
Also, in the UK this week unemployment rates remained low. Under a new method of surveying carried out by the Office of National Statistics (ONS), the UK’s unemployment figure ticked up to 4.2% in the three months leading up to August, up from 4.0% in the three months to July. The data shows that the job market in the region is now beginning to slow down.
Investors are also holding their collective breath waiting for the outcome of the European Central Banks’s (ECB) latest monetary policy meeting on Thursday. Following their September meeting, the market has already priced in that their next decision would be an ‘intermediate one’ while the results of the Bank Lending Survey – which reports on lending conditions in the Euro area – and Q3 GDP growth are yet to materialise. While other regions look predominantly to the Fed for guidance on interest rate decisions, the ECB have always maintained a data-dependent stance, one that may mean they forge an independent path. Although bond yields may not be at the highs they were, many are taking their rise as an indicator that the central bank will take a hawkish stance and hold firm on rates this time around.
Coming up this week, after weaker than expected Europe PMI data, we have the ECB’s interest rate decision, US jobless rates and US PCE.
Nicola Tune, Portfolio Specialist