Euro area composite PMIs smashed expectations in October

Services PMIs were up 0.5 points to 54.2, close to the highs reached earlier this year, while manufacturing output was down slightly to 53.3 (-0.2 points), a five-month low. New orders and hiring intentions diverged in the two sectors, improving in services and waning in the manufacturing sector on the back of global economic uncertainty. Nonetheless, the deterioration in the global economic environment also had an impact on services sector business expectations, signaling that confidence might drop in the coming months.

"Our PMI-based GDP indicator stands at 0.4% q/q, in line with our growth forecast. We see this report as being consistent with our view that private consumption should be the engine of growth in Q4, offsetting weakness in net trade stemming from the emerging market slowdown. In addition price components continued to signal deflationary pressures, in line with our view that inflation will remain weak this year and next and that, together with the riskier environment, this should trigger further ECB action",Barclays.

 In terms of countries, confidence inched up in both Germany and France, and expects some improvement in the periphery (Italy, Spain and Ireland) as well.

"We look for 0.2 and 0.9 point increases in services and manufacturing PMIs, with confidence remaining nonetheless below levels seen earlier this year", added Barclays.