Euro tumbles as manufacturing and services data disappoints

Business activity declined faster than expected in the euro zone in October, according to a survey of companies the region, sending the single currency tumbling.

The IHS Markit purchasing managers index for the manufacturing sector edged down to an initial 'flash' reading of 52.1 from 53.2, worse than the dip to 53.0 that economists had been expecting. Industrial output momentum and the pace of hiring continued to lose steam.

Amid trade tensions with the US and slowing global growth, new manufacturing export orders shrank for the first time since the first half of 2013, hitting orders books and optimism about future activity. Manufacturing output, new orders and future output expectations all slipped beneath their long-term averages.

The services PMI also surprised with a stumble from 54.7 to 53.3, just above the long-term average, when a 54.5 reading had been expected.

Confidence of services sector firms remained high, albeit easing somewhat, with order books and hiring continuing to expand but at a slower pace.

“The flash PMI for October gives a first glimpse on where the euro zone economy is heading. And the picture is not terrific,” ING economists said.

The euro was down 0.6% against the dollar to $1.1401 and down 0.1% versus the pound at €1.1329.

Barclays said the fourth quarter’s first PMI release pinned its PMI-based GDP growth tracker at 0.3% quarter-on-quarter, below its baseline forecast of 0.4% for the fourth quarter.

"This highlights that the balance of risks is tilted to the downside, underlining threats to our scenario. We highlight serious downside risks to our forecast, mainly stemming from the external side – trade tensions, but also from rising oil prices. Political risk, mainly from Italy and resurging around Brexit, also remains marked, in our view."