Eurozone Receives Support from France PMI Data

France's long-struggling manufacturing sector unexpectedly returned to growth in September despite the fact that their private sector activity expanded at an overall slow pace due to weaker than forecast service sector business, a survey showed on Monday. Data compiler Markit said that its flash monthly purchasing managers index for activity in the manufacturing sector rose to a 10-month high of 51.3 this month from a final September figure of 49.7.

The reading was better than the economists' average forecast for 50.0, which also happens to be the level that demarcates an expansion in activity from a contraction. In contrast, the service sector index eased back to a three-month low of 52.1 from 53.3 in September, very close to the market expectations for a reading of 53.0.

The slower pace of service sector activity meant that the composite index for overall business activity slipped to 52.2 from 52.7, matching economists' average forecast for this month. In contrast, the service-sector data was weaker than expected with a decline to 52.1 from 53.3 the previous month, weaker than the expected figure of 53.0, and the composite index declined to a two-month low of 52.2 from the 15-month peak of 52.7 previously. Concerns over the services sector will maintain doubts surrounding the overall outlook.

Employment declined slightly in both sectors for the month, the fifth decline seen for 2016, although the decline in manufacturing employment was the slowest in eight months. There were further increases in input costs for the month, especially in the manufacturing sector, which recorded the strongest rate of increase for over 12 months. Output prices continued to decline for the month, although the rate of decline was the slowest since September 2015.

"I'm not too disappointed by this cool down in the number, there are signs the situation is going to improve – and potentially quite markedly," Markit chief economist Chris Williamson said.

He noted that manufacturers' new order flow had grown at its fastest pace in 2 years boosted by demand from abroad while staffing levels had stabilized after having reduced headcounts since February. Williamson said that with business activity at levels seen in October's PMI report, growth would likely pick up in the final three months of the year. "It should be a good fourth quarter," he said. Improvement in manufacturing will also be welcomed, but disappointing services-sector data will have a larger impact on GDP data.

The Euro edged lower after the data as an early corrective recovery in EUR/USD faded below 1.0900. Bunds extended opening gains and were higher by over 20 ticks on the day, while European stocks opened higher. France's statistics office will publish third-quarter economic output figures on Friday that economists expect on average to show a growth rate of 0.3 percent.