German manufacturing PMI increases, but composite stagnates

Fitch affirmed Hungary’s rating at BBB and kept the outlook negative.
Today in the morning November’s PPI index will be released in Czechia.
In the afternoon, Poland will publish core inflation in November.
Tomorrow the Hungarian central bank holds a rate setting meeting.
Serbian President Aleksandar Vucic has claimed victory in snap elections, with almost 47% of the vote, according to projections.

Erste Bank Research Team Erste Bank

Economic developments

Overall, the market sentiment has weakened once again. The latest flash PMI releases indicate that sentiments among service providers have deteriorated again in Germany, while in manufacturing, the sentiment continued to rise. It appears, however, that the manufacturing PMI in Germany, which bottomed out in the third quarter, has marginally decreased compared to the second quarter of 2023. As German manufacturing is highly integrated into the global value chains, this gradual rise in sentiment confirms the gradual recovery in global industrial activity. However, the composite PMI index for Germany remained close to that of the previous quarter, where the German economy contracted by -0.1% q/q. As for the Eurozone as a whole, sentiment among service providers has deteriorated, and the manufacturing sentiment has stabilized at a low level. Therefore, the growth outlook for the Eurozone for 1Q24 remains subdued.

Market developments

Turning to the markets, on Friday, Fitch affirmed Hungary's rating at BBB and kept the outlook negative. The long-term yields moved significantly down at the end of the week, reflecting changing expectations for monetary easing on the core markets. Although the Fed and the ECB kept the benchmark interest rates unchanged, German 10Y yields were roughly 25bp lower by the week's end. The bond market in the region followed this sentiment, and 10Y yields declined between 20bp (Czechia) to as much as 55bp (Hungary). The Hungarian yield curve could be additionally supported by another upcoming round of monetary easing. On Tuesday, the Hungarian central bank holds a rate-setting meeting, and another round of monetary easing amid falling inflation is expected. As for the FX market, the Czech koruna is slightly weaker against the euro, while the Hungarian forint and the Polish zloty are relatively strong.

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Erste Bank Research Team

Erste Bank

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