EconoTicker

The German ZEW Economic Sentiment Index for October showed a notable improvement, rising to 13.1 from 3.6 in September, exceeding the market expectation of 10.0. This indicates increasing optimism about Germany's future economic outlook among financial market experts.

However, the ZEW Current Situation Index fell further, dropping to -86.9, which was worse than the expected -84.5. This divergence suggests that while expectations for future growth are improving, there are still significant concerns about Germany's present economic conditions, reflecting ongoing challenges such as weak demand, high inflation, and an industrial slowdown.

The contrasting results highlight the ongoing uncertainty in Europe’s largest economy, with optimism for recovery weighed down by the immediate economic hurdles.

The Eurozone’s PMI data for September revealed a mixed picture of the economy. The HCOB Services PMI exceeded expectations, coming in at 51.4, above the forecast of 50.5, but down from 52.9 in August, indicating a slowdown in service sector growth.

On the manufacturing side, according to the numbers we had earlier this week, the situation remains challenging. The Manufacturing PMI dropped further to 45.0, down from 45.8 in August, signaling continued contraction in the sector.

As a result, the Composite PMI, which combines both services and manufacturing, came in at 49.6, slightly beating the estimate of 48.9 but falling from 51.0 in August. A reading below 50 indicates contraction, and this marks a shift back into negative territory for the Eurozone’s overall economic activity.

According to Eurostat, Eurozone inflation in September dropped to 1.8%, down from 2.2% in August, marking the first time it has fallen below the European Central Bank’s 2% target since mid-2021. With economic growth continuing to slow across the region, the ECB now has increased justification for considering further rate cuts.

A more closely monitored figure, core inflation, also eased to 2.7% from 2.8%, as widely expected, driven by slower growth in services prices.

During her testimony before the European Parliament’s Committee on Economic and Monetary Affairs on Monday, European Central Bank (ECB) President Christine Lagarde emphasized the ECB's commitment to maintaining interest rates at restrictive levels for as long as needed. She also expressed optimism, stating that the economic recovery in the Eurozone is expected to gain strength over time.

What she said:

• "Looking ahead, the suppressed level of some survey indicators suggests that the recovery is facing headwinds."
• "The labor market remains resilient."
• "Employment growth slowed to just 0.2% in the second quarter, and recent indicators point to a further deceleration in the coming quarters."
• "Looking ahead, inflation might temporarily increase in the fourth quarter."
• "The latest developments strengthen our confidence that inflation will return to target in a timely manner."
• "We will take that into account in our next monetary policy meeting in October."
• "Policy rates will be kept sufficiently restrictive for as long as necessary to achieve our aim."
• "The latest developments strengthen our confidence that inflation will return to target in a timely manner."
• "The new data available at the time of the September Governing Council meeting reinforced our confidence in the timely return of inflation to our 2% target.."

According to a report from Destatis, Germany’s Consumer Price Index (CPI) fell to 1.6% year-over-year in September, down from 1.9% in August and below the expected 1.7%. On a monthly basis, the CPI remained unchanged, following a 0.1% decrease in August.

The Eurozone Business and Consumer Survey Indicator came in at 96.2 in September, below the 96.5 estimate and the previous month’s reading. Business Climate fell to -0.72 from -0.62 in August. Services Sentiment improved to 6.7, beating the 5.6 forecast. Consumer Confidence held steady at -12.9, meeting expectations. However, Industrial Confidence dropped further to -10.9 from -9.9 in August.

As widely expected, the Swiss National Bank (SNB) lowered the benchmark Sight Deposit Rate by 25 basis points (bps), from 1.25% to 1.00%, following its quarterly monetary policy assessment.

The German IFO Business Climate Index declined to 85.4 in September, falling short of the 86.1 expectations and down from 86.6 in August.

The IFO Current Economic Assessment Index also missed the 86.1 estimate, dropping to 84.4 during the same period, while the Expectations Index matched forecasts at 86.3 in September.

According to the HCOB survey released on Monday:

• Germany: The Preliminary Manufacturing PMI dropped to 40.3 in September, below the expected 42.4 and August’s figure. The Services PMI for the German economy also fell to 50.6 in September, compared to the 51.0 expected, and down from 51.2 in August.
• France: The HCOB Manufacturing PMI decreased to 44.0 in September, slightly below 43.9 in August and missing the 43.3 estimate. The Services PMI also fell to 48.3, well below the expected 52.7 and the 43.0 estimate.
• Eurozone: The HCOB Eurozone Manufacturing PMI declined to 44.8, down from 45.8 in August, missing the 45.7 estimate. The Eurozone Services PMI also slipped to 50.5, below both the 52.9 figure from August and the 52.3 estimate.

Eurozone inflation rose by only 0.1% in August, bringing annual inflation down to 2.2%, compared to 2.6% in July. Core inflation increased by 0.3% on a monthly basis, but year-over-year Core CPI fell to 2.8%, down from 2.9% in July.

These figures suggest that the ECB will have more flexibility to cut rates in upcoming meetings, especially as the region faces increasing economic growth challenges.

1. Ursula von der Leyen has endorsed Estonian Prime Minister Kaja Kallas for the position of EU High Representative for Foreign Affairs and Security Policy in her proposal for the new European Commission.
2. Italian politician Rafael Fitto has been offered the post of Deputy Head of the European Commission, responsible for reforms.
3. French Foreign Minister Séjourné has been proposed for the role of Vice-President of the European Commission, overseeing the EU’s prosperity and industrial strategy.
4. Spaniard Teresa Ribera is set to become the European Commission Vice-President in charge of competition.
5. Lithuanian candidate Andrius Kubilius has been nominated for the newly created position of European Commissioner for Defence and Space.
6. Slovenian journalist Marta Kos is expected to be appointed as European Commissioner for EU Enlargement and Ukraine Reconstruction.
7. Austrian Magnus Brunner will become the European Commissioner for Migration
8. Dane Dan Jørgensen will assume the role of European Commissioner for Energy starting November 1.

As expected, the European Central Bank (ECB) on Thursday cut its key interest rates, reducing the deposit rate by 25 basis points amid struggling economic growth and cooling inflation in the Eurozone. The ECB's main refinancing operations rate aligned with forecasts at 3.65%, while the deposit facility rate also met expectations at 3.5%.