The Euro Rebound on Hotter than Expected PPI Data

European stock markets narrowly mixed. The DAX is closed as Germany celebrates Unification day, which made for somewhat quieter trading conditions. The French CAC 40 managed a small gain but the Spanish IBEX has fallen back into negative territory as Catalonia conflicts continue to weigh on sentiment. Cautious trading in Europe followed a largely positive session in Asia overnight. Topix and Nikkei reached fresh two-year highs and Chinese stocks traded in Hong Kong rallied as markets reopened after a holiday, benefiting from robust PMI data over the weekend and the PBOC’s announcement that it will cut reserve requirement ratio for next year. The Hang Seng was up 2.25%, the Nikkei 1.05% at the close, while the ASX 200 dropped -0.49%, as lower oil prices weighed on energy stocks and a sharp fall in QBE insurance, after the company detailed expected losses from recent hurricanes, dragged the index down. A steady RBA failed to lift sentiment. Mainland China remained closed for holidays. U.S. stock futures are higher and oil prices are down on the day.

UK PMI Data Disappoints

The UK’s construction PMI came in much worse than expected, at 48.1 in the headline, well off the 51.1 reading of August. The median forecast had been for an unchanged 51.1 outcome. This is the first time the indicator has been below the growth/contraction 50.0 threshold in 13 months. The data indicates the quickest pace of contraction in the sector since July 2016. The breakdown of the survey makes for pretty dismal reading. Business activity fell for the first time in 13 months, civil engineering work posted its biggest drop since April 2013, and new business volumes fell for the third consecutive month portending a lack of new work once ongoing construction projections are completed. Input buying fell for the first time in six months. Survey respondents pointed to fragile client confidence, particularly in the commercial market, though worries that the era of ultra-low mortgage rates are afflicting the residential market.

Eurozone producer price inflation came in higher than anticipated at 2.5% year over year, up from 2.0% year over year in the previous month. Prices were still down -0.3% in the three months to August, but a renewed uptick in energy prices, which rose 0.7% month over month and 3.4% year over year that underpinned the higher than expected reading. Excluding energy, the annual rate nudged to 2.2% year over year from 2.1% year over year. The latter is still above the 2% limit for price stability, but so far the ECB is still not satisfied that underlying inflation pressures are sufficiently picking up as wage growth remains weak.