Soft EU Composite PMI Weighs on European Markets

European stock markets are heading broadly south after a mixed session in Asia. Hang Seng and CSI 300 moved higher, amid reports that mainland investors are buying into Hong Kong shares, with onshore small caps remaining under pressure. Stocks in Japan and Australia meanwhile were under pressure as strong currencies weighed on exports. In Europe, the moves played a role, with the FTSE 100 underperforming and down nearly -1.0% as Sterling advanced, which outweighed the impact of the confirmation that the U.K. cabinet is now united in its backing for a transition period following the U.K.’s departure from the EU. The DAX is down as preliminary July PMI readings came off highs and as Automakers remain under pressure amid reports of antitrust collusion in the industry. Eurozone peripherals meanwhile continued to outperform as weak data only underpins Draghi’s reluctance to commit to tapering just yet.

ECB likely to make decision on QE in October

There will be too little data will be available at the time of the September 7 meeting and officials are also reluctant to make the long awaited announcement so close to the German general election. December meanwhile, which has been flagged by ECB staff reportedly, is judged at least by some as too late to announce a follow up asset purchase program to the current schedule, which runs until the end of the year. This leaves the meeting on October 26 as a more viable option. By then the ECB will have the updated staff projections from September, but also more wage data, which comes out after the September meeting. The ECB has tended to make decisions at meetings with updated staff projections and while October clearly will be the preferred option for those itching to clarify the situation, there still is the possibility that the ECB will wait until December if uncertainty remains too high at the time of the October meeting. That September is less likely was already suggested by Draghi’s insistence that autumn doesn’t necessarily mean September and that so far staff hasn’t been tasked with working out the details of a new program.

Eurozone Composite PMI Dropped in July

Eurozone composite PMI dropped to 55.8 from 56.3, more than anticipated as the services reading falls back to 56.8 from 57.4 and the manufacturing number remained steady at 55.4. Markit highlighted that the Eurozone growth spurt lost momentum once again, after already falling last month. The Composite Output Index is at 6 months low and while data still suggests that the economy started the third quarter on a solid footing the pace of the expansion is slowing down, which will back Draghi’s reluctance to commit to QE tapering just yet. Still, growth of new orders, backlogs of work and employment all remained solid according to Markit and especially ongoing strength in job creation is encouraging as it suggests companies remain optimistic about the outlook.