PMIs lower need for ECB stimulus

While the European Central Bank (ECB) continues to highlight downside risks to growth, surveys/ hard data question this need. Sep advance composite PMIs eased a notch to 53.9 from Aug's 54. Despite this moderation, PMIs have held in expansionary territory for nine straight quarters to 3Q15. 

Service sector performance has picked the slack of any soft patches in manufacturing activity. New orders and employment sub-indices have stabilised. Impact of the recent developments in the leading carmaker Volkswagen is however being watch with trepidation, which has huge manufacturing facilities across Europe according to the press. 

After rising 1.2% YoY in the first quarter of 2015, the Eurozone economy expanded 1.5% in 2Q as a pick-up in exports offset softer domestic spending. Unemployment rate has been falling even if at a snail's pace, while wage growth has begun to look up. 

Despite a less compelling reason to ease policy conditions, lack of inflationary pressures and an increasing likelihood that the 2% CPI target will be missed, will keep the ECB out in force to show its readiness to add more stimulus. The central bank also fed these expectations by highlighting that the current QE program provides sufficient flexibility in terms of fine-tuning the size, consumption and duration of these purchases. 

On the side, Spain's Catalonia region goes to the polls over the weekend, pitched as a referendum for its independence. Spain has been an out-performer this year, with GDP growth up 3.1% YoY in 2Q, amongst the strongest in the zone. Risks to the growth outlook are under watch in case the separatists get an upper hand at the elections.