Euro-Zone Manufufacturing Slips to a Seven Year Low, Euro-Dollar (EURUSD) Pulls Back

The Euro-Zone final September manufacturing PMI was revised down to 45.0 from 45.3 in the previous month and versus 47.6 in August. This was the lowest reading since December 2001. The breakdown shows the output reading down to 44.1 from 47.6 in the previous month. The orders reading fall to just 41.7, the lowest since October 2001, which indicates that a turnaround in output growth is not in sight. The reading for both input and output prices decreased, but remains above the 50 point no change mark. Data confirms that the Euro-Zone economy is slowing down sharply and the deceleration in output price inflation could suggest increased room for the ECB to move on rates.Meanwhile, the dour outlook forthe Euro-Zone has led the euro-dollar (EURUSD) to pull back from an intraday high of 1.4162 to hold near 1.4120.

The German final September manufacturing PMI was revised down to 47.4 from 48.1 reported initially. This is the lowest reading since June 2003 and down from 49.7 in August, which indicates that the manufacturing sector is now contracting. The reading for new orders dropped to 44.9 in September, from 46.8 in the previous months and the fact that orders are falling suggests that a quick turnaround in output is unlikely. Meanwhile, the French final September manufacturing PMI was revised down to 43.0 from 43.6 reported initially. The downward revision and the sharp drop from the 45.8 reading in August further below the 50 point no change mark indicates that the French manufacturing sector is contracting sharply. The breakdown showed the fourth months of contraction for orders inflow, with the corresponding reading dropping to just 37.5 from 41.3 in August, so a turnaround in production is not in sight. At the same time both input and output price inflation is decelerating, so data will add to pressure on the ECB to cut rates. And finally, the Italian September manufacturing PMI dropped to 44.4 from 47.1 in August. Our forecast was 46.7 and our median 46.4, so data were much weaker than anticipated and add to recession fears in the Euro-Zone.