The EMU PMI business sentiment surveys showed some further, albeit modest, improvement in September, according the flash estimate. The composite index rose 0.4 points to 50.8, the highest level since May 2008 and points to a return of positive GDP growth in Q3. The manufacturing sub-index increased to 49 from 48.2 while the services sub-index crossed the 50 boom/bust level arriving at 50.6 from 49.9 previ-ously. Despite the modest improvement, the advance fell short compared to expecta-tions. Looking at the results of Germany and France, the two countries for which there are results available, the German indices disappointed. The services index dropped to 52.2 from 53.8 while the manufacturing index rose to 49 from 48.2, still indicating a contraction in activity. Contrary to the German indices, the French ones were strong and stronger than expected with the services PMI at 52.2 from 49.9 and the manufacturing one at 52.5 from 50.8.
EMU industrial orders showed a strong 2.6% M/M increase, while on a yearly ba-sis, orders still declined 24.3% Y/Y. There were also revisions to the previous months, leading to the conclusion that Q3 orders are well above Q2 levels.
French consumer spending disappointed in August falling 1% M/M and 1.3% Y/Y, following a 1.2% M/M and 0.5% Y/Y decline in July. The market was looking for small positive increases. The outcome is of course a disappointment and while the figures are volatile and thus September may show a decent growth figure, it puts downward risks for French Q3 GDP
Belgian and French business confidence indices (national data) showed a further advance, the French one to 85 from 79, while the Belgian showed a more modest in-creased, notably to -17.8 from -18.2. While the report shows the recovery continues, details point to a moderate pace of improvement.
Other: BoE downplays recent better eco data
In the Minutes of the September meeting, the MPC downplayed the importance of recent better eco data for the medium-term inflation outlook. ‘Although the data on output growth were more encouraging, the level of output had fallen significantly and there was likely still a large measure of spare capacity in the economy’. There were also a lot of doubts on the sustainability of the recovery. The MPC noted that previ-ous financial crises had shown that the drag on aggregate demand was likely to be long-lasting and sounded concerned about the downward risks posed by the high levels of public debt and the persistence of global imbalances. As such, the MPC de-cided unanimously to maintain the Bank rate at 0.5% and to continue its £175B asset purchase programme, although King and Miles indicated that a further extension of the programme may still be needed later on.
At their September meeting, the Norges Bank as expected kept the key policy rate unchanged at 1.25%. The accompanying statement however unveiled that the Board has also considered the alternative of increasing rates, as the unemployment may remain considerably lower than previously expected.
