Morning Round-Up

Friday Feeling

Check out this week's playlist here!

Streets of Philadelphia - Bruce Springsteen

Georgia - Vance Joy

Brics - After Patrol

Lose Yourself - Eminem

Space Oddity - David Bowie

UK PMI

Yesterday, there was mixed reaction following UK PMIs with the data showing expansion across both services and manufacturing, albeit with the rate of expansion falling to an 11-month low.

Against expectations of a 51.4 print, UK services PMI came in at 50.3 marking an 11-month low, while services posted a figure of 51.8 marking a 6-month low and missing forecasts of 52.2.

The report cited how perceived economic uncertainty over October lead to delayed decision making across the economy. This, the report said, fed into a “wait and see approach” with business, particularly in relation to major purchases and investment. This came as business optimism eased for the third consecutive month in a row, falling to its lowest level since the end of last year. 

Here, the Chief Business Economist at S&P said that companies were “await[ing] clarity on government policy, with conflicts in the Middle East and Ukraine, as well as the US elections, adding to the nervousness about the economic outlook”.

Regarding inflation, the report suggested that cost pressures further decreased again, with input price rises easing to their slowest pace since November 2020.

In relation to the labour market, the report indicated that staff hiring slowed this month with total private sector employment falling for the first time since December 2023. This trend was particularly prevalent in the services sector with the largest fall in employment in 13 months.  Commenting on this trend, S&P’s Chief Business Economist went further to say that “Worryingly, the deterioration in business confidence in the outlook has also prompted companies to reduce headcounts for the first time this year.”

UK Manufacturing Sentiment Dips

Sentiment within the UK manufacturing sector fell at its fastest level in two years, according to a report by the CBI.  Here, the CBI’s quarterly index fell from -9pts in July to -24pts in October, and comes as output volumes eased, and new orders fell. 

According to the CBI’s Lead Economist Ben Jones, “Sentiment in the manufacturing sector appears to have soured in recent months. Demand has softened both at home and abroad. And although cost pressures have eased, costs are still rising faster than prices, implying a further squeeze on margins.”

As with the above article, the CBI’s report indicated that the outlook for hiring remains subdued. Here the report noted that “manufacturing headcount actually rose for the first time in over a year over the past quarter, but numbers employed are expected to remain unchanged over the coming quarter. Meanwhile, investment intentions for the year ahead have weakened across the board.”

Earlier this year, we looked at how Oxford Economics and the Manufacturing Technologies Association had released a publication arguing that the UK manufacturing sector makes up around 23% of the UK economy (not merely the 8% that is often quoted by economists).

Here they said that this number accounts for the “the direct, indirect, and induced impacts of manufacturing, which is a far more comprehensive overview of what we make, the complex nature of our supply chains and the economic benefit gained from the spending of wages by those employed in our sector”. 

The report also argued that manufacturing supports over 7m jobs and makes up £518bn of the UK economy.

With the Autumn budget just around the corner (30th October), some industry leaders have called on the government to do more to support R&D vis-à-vis manufacturing in addition to boosting capital allowances, administering tax incentives, and boosting the UK’s international competitivity.

German PPI

In leu of Germany’s dragging economic indicators, Europe’s largest economy continues to evidence weakness.

Month on Month Producer Price Index (PPI) missed on expectation, falling 0.5% after a previous 0.2% gain. As producers receive proportionally less for the same level of output, it may be a telling sign that consumer strength is dwindling.

Despite the majority of the Eurozone performing relatively well, cracks from within Europe’s powerhouse will certainly be an important factor in the ECB’s next interest rate decision later this year.

Today’s Data

With the US election just around the corner, markets will be paying close attention to the release of key data from across the Atlantic today as participants look for further insight into the health of the world’s largest economy. Today, durable goods orders are released at 1330, ahead of the Michigan Consumer Sentiment Index at 1500 where the general market consensus is expecting to see a marginal rise in sentiment.