S&P Global PMIs set to remain broadly stable in October, with services leading and manufacturers lagging

By News Room Last updated Oct 24, 2024

The S&P Global preliminary PMIs for October are likely to show little variation from the September final readings.
The Federal Reserve will likely trim rates again in November, with PMIs having no significant impact on the decision.
Financial markets revolve around the potential outcome of the US presidential election.
EUR/USD is poised to extend its decline after breaking below 1.0800.

S&P Global will publish the preliminary estimates of the United States (US) Purchasing Managers Indexes (PMIs) for October on Thursday. The indexes result from surveys of the senior executives in the private sector. They are meant to indicate the overall health of an economy, providing insights into key economic drivers such as GDP, inflation, exports, capacity utilization, employment, and inventories.

S&P Global releases three indexes: The Manufacturing PMI, the Services PMI, and finally, the Composite PMI, which is a weighted average of the two sectors. Readings above 50 indicate that economic activity is expanding, while figures below it represent economic contraction. Such indexes are released every month in advance of other official figures, becoming a key leading indicator of the status of the economy.

According to the September final S&P Global Manufacturing PMI, “the sector moved deeper into contraction territory at the end of the third quarter of the year,” blaming such a result to weaker demand and political uncertainty related to the upcoming US election. The index resulted at 47.3, declining from 47.9 in August.

On the contrary, the PMI for services suggested that the sector’s output expanded, with the index printing at 55.2 in September. Despite easing from 55.7 in August, the Services PMI signalled a “market monthly increase in service sector output at the end of the third quarter, and one that was among the strongest in the past two-and-a-half years.”

As a result, the S&P Global Composite PMI posted 54.0 in September, down from 54.6 in August. The report, however, included a worrisome line: “Inflationary pressures strengthened,” with the increases in input costs and output prices hitting 12-month highs for the service sector and six-month highs for manufacturing.

What can we expect from the next S&P Global PMI report?

Financial markets anticipate a modest improvement in the flash Manufacturing PMI, foreseen at 47.5 in October. The services index is expected to print at 55, while the Composite PMI will likely show little variation from the September reading of 54.

A poor performance of the manufacturing sector would come as no surprise, and the expected uptick would likely neutralise concerns particularly if the Services PMI keeps indicating a solid expansion in the sector.

Overall, recessionary fears have receded, with the focus shifting to the upcoming presidential election and the potential impact of the outcome on the economy. Indeed, better-than-anticipated figures will boost optimism about the American economy and maintain the Federal Reserve (Fed) on the monetary loosening path.

The Fed trimmed the benchmark interest rate by 50 basis points (bps) in its September meeting, and market participants expected the central bank would continue cutting rates at an aggressive pace. However, signs of steady growth spooked away such concerns. Fed officials will likely deliver 25 bps cuts in November and December and will continue to do so in the year ahead. PMI figures should deliver an extremely disappointing surprise to trigger concerns and shift these expectations, which is quite an unlikely scenario.

When will the October flash US S&P Global PMIs be released, and how could they affect EUR/USD?

The S&P Global Manufacturing, Services and Composite PMIs report will be released on Thursday at 13:45 GMT and are expected to show manufacturing output is still in trouble while the service sector remains the strongest. Overall, the anticipated figures represent no significant variation from September final figures.

Ahead of the release, the US Dollar is the strongest currency among major ones, helped by a constant run to safety ahead of the US presidential election. The EUR/USD pair trades below the 1.0800 mark and at fresh multi-week lows. Given tepid European growth-related data, the Euro is among the weakest USD rivals. It is worth noting that the Eurozone PMIs will be released ahead of the US ones and will likely have a negative impact on the local currency.

From a technical perspective, Valeria Bednarik, FXStreet’s Chief Analyst, says: “The EUR/USD pair bearish trend is quite evident in the daily chart, with technical indicators maintaining their firm downward slopes, despite being in oversold territory. Other than extreme readings, there are no signs of bearish exhaustion. Even further, the pair is developing below all its moving averages, which gain downward traction far above the current level, reflecting persistent selling interest.”

Bednarik adds: “The pair has an immediate support area at around 1.0750, where it posted several intraday highs and lows back in June and July. Once below it, the next natural support level comes at 1.0700, en route to the year’s low at 1.0601. Near-term resistance lies at around the 1.0840 figure, while a flat 200 Simple Moving Average (SMA) in the daily chart is the next relevant dynamic resistance, currently at around 1.0870.”

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Economic Indicator

S&P Global Composite PMI

The S&P Global Composite Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging US private-business activity in the manufacturing and services sector. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for USD.