Euro-Zone Economic Confidence Slips to Record Low, Sentiment Deteriorates Across the Board

Euro-Zone EUC economic sentiment dropped 80.4 from 87.5 in September, the sharpest decline since the start of the survey. Our median was 85.8 and the much lower than expected reading will add to arguments for another 50 bp cut from the ECB next week, especially as inflation is coming down quicker than hoped for. The breakdown shows the reading for industrial sentiment down at just -18, versus -12 in September. Consumer confidence dropped to -24 from -19 and services sentiment fell to -6 from 0. Construction and retail sentiment was also sharply lower and data points to a deterioration in sentiment across the board. Interestingly, the reading for expected inflation in the consumer confidence number actually rose to 19 from 17, despite slowing energy prices. which is something the ECB will have to keep an eye on.

Euro-Zone Retail PMI Contracts For the Fifth Month, Strengthening Arguments for Another ECB Rate Cut

The Euro-Zone October retail PMI dropped to 44.3 from 46.2 in September, the readings of all three big Euro-Zone countries deteriorated and are now below the 50 point no change mark. The breakdown for the Euro-Zone showed the reading for gross margins down at just 40.2, versus 40.8 in September. The employment reading dropped to 47.5 from 47.9 and sales readings are also sharply lower. At the same time input price inflation is slowing down so data further add to the arguments for a rate cut next week. In addition, the ECB lent EUR 14.543 bln via its marginal lending facility at a rate of 4.25%, while at the same time banks deposited EUR 215.909 bln at the deposit rate of 3.25%. Data indicate that the interbank market is still not functioning.

Meanwhile, the Euro-Dollar (EURUSD) was pushed lower by central bank sales, with a Middle Eastern name mooted originally from the 1.3150 area, while other Asian and Eastern European accounts were also tipped from 1.3130 down to the 1.3100 handle. The sharp move higher in Asia provided good levels to carry reserve management interest. There is broad based perception that once the ECB delivers more rate cuts the euro will be unable to sustain higher levels as interest rate differentials with the U.S. narrow. Near-term support at 1.3100 is providing some support, while further bids are tipped between 1.3060-80.

DailyFX

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