European Stocks Slip Following Soft PMI Reports

Stock markets are narrowly mixed, with most core indices trading under pressure. WTI slightly up on the day, but below the highs of above USD 50 per barrel seen earlier. The 10-year Bund yield is currently up1.9 basis points at 0.29% and the Gilt yield up 2.8, Italian bonds continue to outperform and the 0-year is down 1.5 basis points. The yield curve continues to steepen as the short end outperforms. Chinese PMI results were stronger than expected which somewhat offset the disappointing UK numbers.

The Chinese official manufacturing PMI grew more than expected in November.  The PMI increased to 51.7 in November from previous month’s 51.2.  Expectations were for a rise in the PMI to 51. Inflationary pressures are building as the sub-index for raw materials prices jumped to 68.3 in November from 62.6 in October.

UK Manufacturing PMI Missed Expectations

The UK November manufacturing PMI missed expectations, coming in with a headline reading of 52.4 from a downwardly revised 54.2, which remains a 27-monthy high. The median forecast had been for 54.2, which would have been unchanged from the previous month given the downside adjust to the October figure. While disappointing, the outcome remains comfortably above the long-term average of 51.5. New orders fell to 54.8 from 56.2, portending a continued abatement in expansionary momentum in the sector, though Markit, the compiler of the survey, described orders as still being solid. Businesses reported that both domestic and export demand remained strong.

Eurozone manufacturing PMI was confirmed at 53.7 as expected and up from 53.5 in the previous month. The French reading was revised slightly higher and the Italian PMI came in higher than expected at 56.6, up from 54.7 in October, which helped to compensate for a downward revision to the German reading to 54.3 from 54.4.

Eurozone October unemployment dropped to 9.8%, lower than consensus forecast of 9.9% and with September revised down to 9.9% from 10.0% reported initially. It was not just the drop in German numbers that drove the decline in the overall number, but rates in Spain, Italy, France all declined in October, and the broad improvement ties in with broad improvements in PMIs in September. Youth unemployment remains a major problem though, with the overall Eurozone rate holding steady at a very high 20.7%, indicating that the improvement in the overall number hasn’t reached the under 25s. This highlights that improving growth alone will not improve the underlying conditions on the labor market and that further structural reforms are needed to lead to a broader improvement.