S&P Global — 2 October 2024
Daily Update: October 2, 2024
Eurozone Experiencing a Soft-ish Landing
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
The problem with a soft landing after a rising rate cycle is that it still involves a landing. When an economy lands, inflation and growth moderate in tandem; as a result, unemployment climbs and demand is slow to return. The eurozone is now experiencing the classic symptoms of a soft landing, which is good news only when viewed against the alternative — a hard landing.
Flash Eurozone PMI data from S&P Global Market Intelligence suggests a European economy in danger of a hard landing. The Eurozone Composite PMI Output Index fell from 51.0 in August to 48.9 in September. PMI measurements below 50 indicate contraction. The slowdown is broad-based, with both manufacturing and services showing signs of decline. Business sentiment also fell significantly in September, hitting an 11-month low for the manufacturing sector and a nine-month low for the services sector. Early indications from the flash PMI data point toward falling employment across the eurozone.
Higher interest rates aim to control inflation. From that perspective, the European Central Bank (ECB) can point to some success. As input costs have fallen, prices overall are rising slightly below the ECB’s 2% target. This creates flexibility for central bankers to cut interest rates further in 2024.
If the soft landing is successful, circumstances begin to look better for the eurozone in 2025. Maintaining inflation at target rates allows for more business investment, which should become easier to finance at lower interest rates. Economists at S&P Global Ratings forecast the eurozone to return to growth in the second half of 2025, reaching 2%. This projection includes the expectation of further rate cuts until the deposit rate reaches 2.5% in the third quarter of 2025.
It takes time for consumers to notice disinflation. When prices rise steadily, individuals can struggle to perceive when they stabilize. The delay in expected growth until the second half of 2025 is partly due to a gap between households’ perceptions of disinflation and the official price measure. Once consumers become aware of disinflation, household consumption is expected to buoy economies across the eurozone. In addition, looser monetary policy should encourage consumers to spend, particularly on higher ticket items that require financing.
Unfortunately, visibility on the economic outlook is poor. It is still possible that a downturn in the labor market, more restrictive fiscal policy or less supportive foreign trade could tip the landing from soft to hard.
Today is Wednesday, October 2, 2024, and here is today’s essential intelligence.
CCUS: A Viable Business Model In Asia-Pacific?
Carbon capture, utilization and storage (CCUS) has been identified as a key technology to enable the decarbonization of the global industrial economy and support the growth in energy demand. Momentum to advance more CCUS projects has been established, given the significant gap being recognized between the current scale of carbon removal capacity and the emissions that will need to be abated to achieve net-zero targets.
—Read the article from S&P Global Commodity Insights
Flash PMIs Point To Diverging Growth And Inflation Trends Across Major Developed Economies
The flash PMI data compiled by S&P Global Market Intelligence signaled some widening economic differentials among the world's major developed economies in September. At the G4 headline level, solid — albeit slightly slower — service sector growth was countered by an accelerating downturn of manufacturing output. The latter was most pronounced in the eurozone, which also saw a near-stalling of services output to result in an overall drop in output for the first time in eight months. In contrast, US growth remained encouragingly solid, and further modest output gains were seen in the UK and Japan.
—Read the article from S&P Global Market Intelligence
US Fed's Rate Cut Poses Challenges For Japanese Megabanks
The US Federal Reserve's recent interest rate cut is likely to create headwinds for Japanese megabanks, as it could squeeze overseas loan spreads and slow the Bank of Japan's monetary policy normalization. The Fed on Sept. 18 announced it would lower the federal funds rate by 50 basis points to a range of 4.75% to 5%. This is the first rate cut the US central bank in more than four years, and the Fed is expected to cut rates further by the end of the year.
—Read the article from S&P Global Market Intelligence
Listen: The Decisive | Episode 15 - PMI In Focus: Trade Trends And Political Uncertainty
In this episode of The Decisive Podcast, host Paul Smith is joined by senior economists Andrew Harker and Tim Moore to explore the latest trends in global trade and the impact of recent geopolitical events. They discuss the fragility of export order volumes and the significance of Purchasing Managers Indices (PMIs) as early indicators of economic health. The conversation also delves into the effects of political uncertainty on PMI surveys, particularly in the context of the recent election in UK and the upcoming election in the US.
—Listen and subscribe to the podcast from S&P Global Market Intelligence
Hike In Forecast Q4 2024 Natural Gas Demand Helps Keep Markets On Edge
As Europe enters the fourth quarter, and the official start of the gas winter, markets remain on edge, with the expiry of the Russia-Ukraine gas transit deal at year-end in sharp focus. While gas demand is still well down on pre-2022 levels, any new supply disruptions, increased competition from Asia for LNG cargoes or a very cold start to winter could still test market resilience.
—Read the article from S&P Global Commodity Insights
September US Auto Sales: Smaller Volume, Little Change To Underlying Dynamics
On a volume estimate of 1.18 million units, US light vehicle sales in September are expected to realize a calendar-induced decline of approximately 12% year-over-year. On the bright side, this would translate to a seasonally adjusted annual rate (SAAR) of 16.0 million units, a notable bump from the 15.2 million unit reading in August and sustaining a volatile pattern for this monthly metric since May. The month-to-month volatility in the SAAR reading reflects the current state of auto demand.
—Read the article from S&P Global Mobility
Webinar: Examining the Impact on Key US Business Sectors through 2024 and Beyond (Oct. 22, 2024)
The upcoming US elections are significant for a variety of industries, as the outcome has the potential to bring about significant changes in policies and regulations. Of particular concern are key areas such as energy, technology and finance, which are highly sensitive to shifts in administration. The election outcome may change the market, investment climate and consumer confidence. It is important for businesses to understand and prepare for the possible opportunities and challenges that lie ahead. Join S&P Global analysts as they discuss the potential opportunities and challenges of the US elections to key business sectors.
—Register for the webinar from S&P Global Market Intelligence