Eurozone manufacturing PMI indicates further decline

The October manufacturing purchasing managers index (PMI) for the eurozone remained in contraction after September's seven-year low, indicating a continued decline in demand for metals.

The headline PMI for eurozone manufacturing was 45.9 in October, slightly up from 45.7 in September. An index of more than 50 indicates expansion, while a figure below 50 indicates contraction.

The weakest-performing eurozone country was Germany, with a PMI of 42.1 for October. That was up from 41.9 in September, but still in contraction. The automotive sector in Europe, which revolves around Germany, has been in decline and comprises a large part of the country's manufacturing sector. There were declines in output and new orders, both domestic and abroad.

The decline in automotive production in Germany has weighed on prices for light metals including silicon, magnesium and aluminium, as well as ferro-alloys including ferro-silicon and ferro-manganese.

"Geopolitical concerns, ranging from Brexit to US trade policy, continue to create uncertainty, further dampening demand both at home and in export markets," said Chris Williamson, chief business economist at IHS Markit.

"The focus of manufacturers remains on cost-cutting, reducing inventories and investment spending, while also lowering payroll numbers at an increased rate… The severity of the downturn, alongside poor trends in employment and prices, is especially disappointing given the ECB's recent stimulus measures."

Italy's headline PMI fell to 47.7, down from 47.8 in September, because of falling output and weaker demand in domestic and export markets.

Spain's PMI was down to 46.8 from 47.7 in September. The country's manufacturing downturn deepened because of the decline in sales and new orders in the domestic market. Weak demand from abroad and a reduction in output also weighed on the market. Political uncertainty and an upcoming election on 10 November further dampened business confidence.

Of the four large eurozone economies, only France's manufacturing sector expanded as the headline PMI rose to 50.7 in October from 50.1 in September. There was a moderate rise in manufacturing output at French companies, offsetting a fall in new orders from domestic and export markets.

Global PMIs increase in October

The US and China's manufacturing sectors expanded in October as concerns about the trade war between the two countries eased following positive signals from negotiations.

China's Caixin October manufacturing PMI rose to 51.7, up from 51.4 in September, the third consecutive month of expansion.

Domestic and foreign demand for manufactured products increased and business optimism increased as the US moved to exempt more than 400 Chinese products from additional tariffs. But the labour market continued to contract, and delivery delays weighed on the modest recovery.

In the US, the manufacturing PMI rose to a six-month high in October. The headline PMI number rose to 51.3, up from 51.1 in September. Employment rose at its fastest rate since May and there were faster expansions in new orders and output. The US and China are negotiating "phase one" of a trade deal, with both sides keen to limit the long-running dispute. But negotiations are fragile and an election in the US in 2020 could either encourage or scupper a deal.