Stocks Consolidate as Lending Rises Ahead of ECB Meeting

European stock markets moved cautiously higher, with Eurozone peripherals outperforming slightly, despite ongoing troubles in Catalonia. The DAX managed to climb above the 13000 mark again as PMI readings showed ongoing growth momentum going into the fourth quarter, even if headline readings nudged lower. Still, investors remain cautious as rising orders and improved job creation back the arguments for a reduction in asset purchase targets ahead of Thursday’s ECB meeting. The cautious move higher in Europe followed a largely positive session in Asia overnight. Japan and CSI 300 outperformed, the former still underpinned by Abe’s election victory and the prospect of ongoing monetary stimulus. Trading in Hong Kong was cautious though as investors held back ahead of corporate earnings reports and the Hang Seng underperformed with a -0.53% loss, against a 0.50% gain in the Nikkei, which remained underpinned by a weaker yen.

Eurozone Copositive PMI Was Weaker than Expected

Eurozone composite PMI weaker than expected in October, falling back to 55.9 from 56.7, despite a jump in manufacturing sentiment to 56.7 from 56.1. The Manufacturing PMI output index meanwhile fell back to 58.7 from 59.2 and the services PMI dropped to 54.9 from 55.8, leaving both readings at a 2-months low and dragging down the composite. Still, data continues to point to ongoing robust growth in the Eurozone and national data from Germany and France also confirms a more balanced recovery across countries, which will continue to add to the arguments for a reduced monthly asset purchase schedule next year. Especially as Markit reported another marked improvement in new orders, with “rising workloads” encouraging companies to “take on extra staff at the sharpest pace in over a decade”. And with the accelerated pace of rising job creation providing further evidence on pressure on capacity, and Markit reporting that “capacity pressures acted to push up inflation” and output charges rising at the fastest pace since 2011.

ECB lending survey shows rising demand across all categories. The survey suggests broadly unchanged lending standards for loans to businesses, while standards for mortgages and consumer loans eased in the third quarter of the year according to the central bank’s survey. More signs that the ECB’s easy policy is reaching businesses and consumers, although with house prices on the rise again and some areas close to overheating an easing in standards for mortgage lending also suggests some risks going ahead, if national regulators don’t keep a close eye on developments and take appropriate steps.