DAX Hits Record Highs and then Reverses

The DAX reached record intraday highs, before falling back slightly and other Eurozone stock markets are heading south led by a 1.5% drop in the Spanish IBEX as Spain’s constitutional crisis deepens. The Eurozone services PMI reading also was revised up unexpectedly, but the deepening constitutional crisis in Spain is weighing on sentiment as Spain’s King backed Madrid rather than try to calm nerves and get both sides to negotiate. There are reports that the ECB is urging banks to make more provisions for non-performing loans

The UK’s September services PMI beat forecasts, rising to a headline of 53.6 after August’s 11-month low of 53.2. The median forecast had been for an unchanged 53.2 reading. This is a relief for sterling markets following the disappointing outcomes of the construction and manufacturing surveys. The report is now all rosy reading, however. The headline reading remains below the average seen during the first half of the year, new business growth eased to a 13-month low, and input cost inflation intensified. The survey also found respondents reporting relatively subdued domestic demand. There were concerns about the business outlook, despite the backdrop of a still-healthy labor market and resilient consumer spending. Business-to-business sales were reported as being subdued, while there were delays in decision making on large projects, said to be related to Brexit uncertainties. New business volumes expanded at the slowest pace since August 2016. Confidence for the year ahead was the lowest since June, which in turn was the lowest since 2011. On a more positive note, job creation in the sector remained strong.

Eurozone PMI Services was Revised Higher

Eurozone services PMI revised up to 55.8 from 55.6, which left the composite unchanged from the preliminary number at 56.7. Markit said the economy ended the third quarter “with a flourish as output growth accelerated to a four-month high”. And while the average in the third quarter was slightly weaker than in the second quarter, the improvement in September was underpinned by “the steepest gain in new work received for almost six-and-a-half years”, which is good news for growth in the last quarter. France and Germany are showing growth rates at 77-months and 76-months highs respectively, and Markit warned that the upturn in economic activity continued to test capacity, which led to the sharpest increase in the backlogs of work since February 2011. Employment growth continued to expand and price pressures increased.