The eurozone economy continues to struggle, increasing the chances of more interest rate cuts by the bloc’s central bank.
S&P Global’s composite purchasing managers index (PMI), which measures sentiment in both the services and manufacturing sectors, was 49.7 in October, data released on Thursday showed.
The reading was a touch higher than September’s 49.6, but still remained below the 50 level that suggests economic contraction.
Germany, Europe’s biggest economy, was a notable laggard, with its composite PMI of 48.4 reflecting a manufacturing reading of just 42.6, though that was up from September’s 40.6.
Recent ECB comments have increasingly emphasized the downside risks to the growth outlook materializing, as well as the rising probability that inflation undershoots the ECB’s 2% target in the medium-term, according to a team of economists at Nomura led by Andrzej Szczepaniak.
Consequently: “At the time of writing, markets price approximately 35 basis points of cuts for December and approximately 109bp for 2025, with February priced at 33bp, marginally more than was priced as of close yesterday,” said Nomura.
“We remain of the view that the ECB will likely cut rates by 25bp in December, and 25bp per meeting thereafter until mid-2025, with a final cut in September 2025, bringing the deposit rate to 1.75%,” they added.
Evidence of meek activity and the heightened prospect of ECB rate cuts encouraged the buying of European sovereign debt, pushing the benchmark German 10-year Bund yield down 4.8 basis points to 2.263%.
The STOXX Europe 600 equity index was gaining 0.5% and the euro was trading up 0.2% at $1.0801 amid broad dollar weakness for the session.