Overnight EU and Asian PMIs Reveal Concerns over External Demand, Nomura Says; Numerous Items for the Day Ahead

Commenting on overnight headlines impacting the market, strategists at Nomura noted that this morning's manufacturing PMIs from Asia (Indonesia, China, Taiwan, South Korea, India) and EU countries point to a widening disparity in their recovery.

Overnight Headlines:

• Final manufacturing PMIs for October across the eurozone and UK:
  • Eurozone (50.6, Consensus: 50.7)
  • UK (53.2, Consensus: 51.4)
  • Spain (52.6, Consensus: 52.2)
  • Italy (49.0, Consensus: 50.5)
  • France (48.5, Consensus: 47.5)
  • Germany (51.4 Consensus: 51.8)
  • Greece (48.8, Previous: 48.4)
  • Ireland (56.6, Previous: 55.7)
  • Netherlands (53.0, Previous:52.2)
• Thailand CPI: Headline CPI inflation was lower in October owing to lower prices in fresh food and energy (1.48% y-o-y, Consensus: 1.6%).
• Hong Kong retail sales (volume) in September (4.8% y-o-y, Consensus: 2.0%).
• Bank of Portugal Governor Costa speaks at My Europe event in Lisbon.

Commenting, strategists including Amea Koziol said: "In Asia, those in expansionary territory remained meagre, and those in contractionary territory worsened. In the EU, the UK, Ireland and the Netherlands continued further into the expansionary zone, Germany and the eurozone aggregate remained positive but were revised slightly downward, France and Greece remained in the contraction zone with a slight improvement, but the surprise came from Italy. The breakdown shows broad-based weakness in October, with all major sub-indices declining from the September reading. The new orders index declined 3 points to 47.1, the lowest reading since May."

On China, they noted: "China‟s official PMI fell unexpectedly to a five-month low of 50.8 in October (Consensus: 51.2; Previous: 51.1) but remained in expansion territory. The new orders and output sub-indices fell, while the employment sub-index improved slightly in October. Our China Economics team notes that mixed signals from the weaker PMI release and improvements in other leading indicators (such as the HSBC PMI and Nomura's proprietary indices) indicate that economic momentum remained weak in October. We expect further policy easing in Q4, including a 50bp cut in the bank reserve requirement ratio to shore up domestic demand and help ensure that the government comes close to achieving its 2014 GDP target of around 7.5%."

Looking at the day ahead, the firm highlighted:

• Italy Budget balance, October – ytd.
• SSM Chair Nouy speaks before the European Parliament's ECON committee at quarterly hearing.
• ECB publishes CBPP3 purchases settled as of previous Friday.
• ECB’s Constancio speaks at 2013 German Bernacer Prize at CEMFI.
• Austria OeNB Governor Nowotny gives keynote speech on “European Economic Policy of the Future” in Vienna.
• US Manufacturing PMI October final (Consensus: 56.2).
• US Construction spending: Nonresidential construction spending slowed in August, probably reflecting some payback from a strong Q2, while residential construction spending declined owing to softness in home improvements. The increase in housing starts in September should provide some support for construction spending. Consensus expects construction spending to bounce back by 0.7% in September.
• ISM manufacturing: The September ISM manufacturing report was weaker than expected, as manufacturers appeared less optimistic about economic conditions. This month, with the exception of a few regional manufacturing surveys, the general tone from manufacturers has been positive. However, the volatility in financial markets this month and concerns about global growth may weigh on respondents‟ minds. As such, we expect the ISM manufacturing index to decline slightly to 56.0 in October (Consensus: 56.5, previous: 56.6).
• US Vehicle sales: Vehicle sales declined in September, but were still relatively elevated. In addition, 2014 sales are on pace to easily beat last year's 15.5mn annual sales. The strong showing of vehicle sales this year has led to robust vehicle production, which has helped boost factory activity. We expect to see another strong showing for vehicle sales in October and forecast that vehicle sales will remain elevated at 16.3mn units (Consensus: 16.6mn, Previous: 16.3mn).
• FOMC Fisher speaks (voter – hawkish)
• BoC Poloz speaks on “The legacy of the financial crisis, what we know and what we don‟t”. The speech will be followed by a press conference

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