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Eurozone Services Sentiment Improves Despite Overall Weakness
Confirmed
In Short: Despite the overall weakening sentiment, industrial confidence improved notably from -5.0 to -3.8, while services confidence edged higher from 5.6 to 6.1.
The Eurozone economic sentiment weakened in September, falling from 98.4 to 97.9, below the consensus forecast of 99.0 and its long-term average of 100.
Hiring expectations softened particularly in retail and services, even as industry and construction reported better employment plans.
Manufacturers are becoming less pessimistic, but households are turning more cautious, signaling an uneven recovery.
Switzerland's KOF Economic Barometer, a leading indicator of economic activity, increased from a revised 107.5 in August to 109.1 in September, surpassing the consensus forecast of 105.8.
The improvement was broad-based, with particularly positive developments in manufacturing, services, and construction.
However, some caution is warranted as the September reading incorporated KOF’s annual methodological update, including changes to the indicator pool.
Gold now surrenders some of its initial advance and retests the $4,150 zone per troy ounce on Tuesday.
The pair’s daily decline comes on the back of the generalised improvement in the sentiment surrounding the Greenback.
A stronger-than-expected August US jobs report has reinforced expectations for tighter Fed policy, pushing the probability of a September rate hike to above 60%.
Analysts at HSBC warn that the recent improvement in sentiment toward the Fed’s anti-inflation stance has not resolved deeper macroeconomic concerns.
The New York Fed Governor John Williams said that he “sees no need for urgency after September rate hike,” a dovish statement that pushed the US Dollar Index (DXY) modestly lower, though it remains positive in the day.
Background
Despite the overall weakening sentiment, industrial confidence improved from -5.0 to -3.8, while services confidence rose from 5.6 to 6.1.
What's confirmed
- Hiring expectations weakened particularly in retail and services, even as industry and construction reported better employment plans.
- Manufacturers are becoming less pessimistic and services remain positive, but households are turning more cautious just as hiring expectations soften.
- Eurozone economic sentiment weakened in September even as confidence among businesses improved.
- The Economic Sentiment Indicator fell from 98.4 to 97.9, missing the 99.0 consensus and remaining below its long-term average of 100.
- But the composition was more constructive than the headline suggested: industrial confidence improved from -5.0 to -3.8, while services confidence rose from 5.6 to 6.1.
- The September survey therefore points to an increasingly uneven eurozone recovery signal rather than broad deterioration.
- One caveat is that September’s euro-area aggregate excludes Italy’s consumer survey because of a structural break, limiting direct comparison with previous months.
- Industrial sentiment actually improved notably from August, while services confidence also edged higher despite falling short of expectations.
What's still developing
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- This, along with the hawkish BoJ, underpins the JPY and caps the currency pair.
- The pair weakens as the US Dollar (USD) slips, even as markets price in a higher likelihood of a Federal Reserve rate increase in September.
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- Gold steadies on Tuesday after suffering a sharp sell-off at the start of the week.
- However, the report noted that indicators for foreign demand and financial and insurance services weakened, and employment prospects remained under pressure.
- Looking ahead, all the attention will be on the release of Australia’s inflation data on Wednesday.