PMI and consumer confidence missed the expectations
The new week started with PMI numbers from major economies, with lower-than-expected results. French manufacturing PMI in October at 47.4, was the lowest since May 2020, while the initial value of the service PMI recorded 51.3, approaching 51.0, which was seen earlier in August this year. In Germany, October manufacturing PMI hit a 28-month low of 45.7, while the initial value of the services PMI fell to 44.9, down from September 45.0. In Eurozone, the manufacturing PMI in October was 46.6, the lowest level since June 2020. The initial reading of the Eurozone services PMI also was 48.2, which is the lowest level since March 2021.
In the UK, Rishi Sunak became prime minister on Tuesday after meeting with King Charles III at Buckingham Palace. While it was somehow welcomed by market participants, the heavy shadow of weak economic data has created many questions and doubts. Monday's data show that the UK manufacturing PMI fell to 45.8 in October, the lowest since May 2020, while the services PMI recorded 47.5, which is again the lowest since January 2020. The UK economy technically is in recession. Yesterday and after that Mrs. Truss was forced to step down due to a crusade from party officials for his previously announced fiscal plan, yields on 2-year and 10-year British government bonds fell 30 basis points on the day. On Tuesday decline continued and UK 10-year Gilt yields fell to 3.636. How Sunak going to save the economy from falling into a Great Recession, is one of his biggest conundrums since taking the job.
On the other side of the Atlantic Ocean, the US Markit manufacturing PMI in October also subsurface expansion level, printed 49.9, a 28-month low. The initial value of the service PMI fell to 46.6, from 49.2 in September. On Tuesday, October CB Consumer Confidence also fell to 102.5 from 107.8 seen in September.
Looking at these numbers will make it clear why Treasury Secretary Yellen did not hesitate to point out that the US economy does not rule out the risk of recession and may also face the substantial impact of financial stability risks. Now, we can expect changes in the central bank's monetary policies. This change could slow down the pace of interest rate hikes in the December Fed meeting, while a 75-basis point rate hike in November still could be on the table. Therefore, we can expect a softer tone of the statement, which will be positive for the stock markets. We can see its effects even now, as the market is already estimated and priced.
We can see the changes on the technical chart as well. The daily chart seems that the downtrend steamed out, but it is still too early to say that the uptrend has started. The main resistance sits at 4,100 and for any uptrend, we need to see the price moving above this level first.
