European long-dated bond yields rose; equity markets fell, led by Portugal. The euro weakened, while Brent crude oil jumped 3.13%.

Long-dated European bond yields increased, reflecting the curve's sensitivity to global and US developments, contributing to a further flattening of the yield curve. Overall, equity markets posted negative performances, with Portugal experiencing the most significant declines. The euro remained under pressure, trading at 1.0796 against the dollar. In the commodities market, Brent crude oil prices jumped 3.13%, primarily due to escalating tensions in the Middle East ahead of anticipated ceasefire talks in Gaza. However, expectations of oversupply limited any further price increases.

The Eurozone Composite PMI saw a slight increase, yet the economy remains fragile. Meanwhile, German business sentiment has improved, despite ongoing declines in manufacturing and a slowdown in services growth.

The Eurozone Composite PMI rose to 49.7 from 49.6, reflecting persistent economic fragility despite some easing in inflation. While manufacturing continues its decline, a trend that has persisted since late 2022, the services sector offers modest growth but shows signs of softening. Germany's flash PMI increased to 48.4, with manufacturing at 42.6 and services at 51.4, indicating slight improvement yet remaining below expansionary thresholds. The ECB may consider accelerating rate cuts amid concerns over a sluggish recovery. In contrast, German business sentiment has strengthened, as evidenced by the Ifo Business Climate Index, signalling stabilisation, particularly within the manufacturing sector. Consumer confidence in the Eurozone has also improved slightly, yet economic sentiment remains subdued.

The Eurozone Composite PMI increased to 49.7 in October, reflecting persistent economic weakness. Manufacturing continues to contract, while services support growth. The ECB may accelerate rate cuts as recovery concerns persist amid fragile conditions.

The composite PMI increased slightly to 49.7 in October from 49.6 in September, reflecting continued economic weakness, despite easing inflation driven by subdued demand. The modest improvement was primarily due to a less severe contraction in manufacturing, though this sector has been in decline since late 2022. Meanwhile, the services sector remains the main driver of economic activity but showed signs of softening, with new orders continuing to weaken. In Germany, the flash PMI rose to 48.4 in October from 47.5 in September. While this marks a slight improvement, it remains below the 50 threshold that signals expansion. Germany’s manufacturing PMI rose to 42.6 from 40.6, and the services PMI increased to 51.4, surpassing forecasts of 50.6.

The Eurozone's PMI has been on a downward trajectory since June, raising concerns about the fragility of the region’s economic recovery post-energy crisis. This has prompted the European Central Bank (ECB) to consider accelerating the pace of rate cuts. ECB President Christine Lagarde, in the last press conference, highlighted deteriorating survey data as a key factor behind the October rate cut decision. Market sentiment is increasingly shifting toward expectations of a 50 bp cut by December.

The latest data indicate that the Eurozone Composite PMI is nearing expansionary territory, potentially leading to stronger-than-anticipated GDP growth in the third quarter. However, we anticipate that the manufacturing sector, particularly in Germany, will continue to pose a substantial drag on overall economic performance.

The German economy shows signs of recovery as business confidence and optimism increase, particularly in the manufacturing sector.

The German economy has temporarily halted its decline, as business confidence displayed a modest uptick this month alongside a stabilization in the manufacturing sector. The Ifo Business Climate Index rose to 86.5 in October, up from 85.4 the previous month, marking the first increase after four consecutive months of decline. This improvement indicates a shift in sentiment among German businesses, suggesting greater optimism for the near future. Additionally, the Ifo Current Assessment Index increased to 85.7, surpassing the estimated 84.4, reflecting a more positive evaluation of the current economic situation. Furthermore, the Ifo Expectations Index rose to 87.3, exceeding the forecast of 86.9 and increasing from a revised figure of 86.4 in September. These developments collectively suggest that while challenges remain, there are signs of recovery in the German economy, contributing to a more favourable business environment.

While these figures reflect a positive trend, Germany continues to grapple with underlying structural challenges. Nevertheless, the recent uptick in business confidence—particularly within the manufacturing sector—indicates that the most difficult period may be behind us. However, we expect that this optimism could be short-lived, and a sustained recovery for Germany may not materialize until 2025.

Consumer confidence in the Euro area improved slightly, though economic sentiment declined, while employment expectations showed modest gains.

Consumer confidence in the Eurozone continued to improve, according to a preliminary report from the European Commission. The confidence indicator rose by 0.4 points, reaching -12.5 in the Eurozone, while in the EU, it increased by 0.5 points to -11.2. However, the economic sentiment indicator for the Eurozone declined by 0.3 points to 96.2, remaining stable at 96.7 in the EU. The employment expectations indicator showed slight gains, increasing by 0.1 points to 99.5 in the Eurozone and by 0.3 points to 100 in the EU.

Looking ahead, we anticipate consumer confidence to hold steady amid ongoing economic challenges, particularly as the impact of lower interest rates unfolds.