Danske Bank highlights weaker Euro sentiment amid rising French CDS spreads, with EUR/CHF declining and EUR/USD briefly falling below 1.12. US and German bond yields also dropped across the curve, while Eurozone consumer confidence weakened more than expected in October. Attention turns to the upcoming flash PMIs, with the composite index expected to ease to 52.7 from 53.1, signalling continued moderate economic growth.

Bearish Euro and softer Treasury yields

“EUR/CHF also dropped as the bearish EUR sentiment grew together with a new rise in the French CDS. EUR/USD also briefly fell below 1.12. Yields dropped across the curve both in US and Germany. Notably, the 10Y US Treasury yield fell below 5% for the first time in a month.”

“In the euro area, consumer confidence fell more than expected in October to -17.9 (cons: -17.0, prior: -16.8), which is the lowest level since May.”

“Weak confidence should weigh on consumption in the fourth quarter of the year. However, we saw decent consumption growth in Q2 despite plunging confidence, so the indicator is not the most reliable for spending at the moment. “

“In the euro area, the flash PMIs for October are released, which are set to be important for markets. Following a positive trend in the latest months, the PMIs are expected to show stabilisation with small declines. “

“The composite PMI is expected to fall to 52.7 from 53.1 which is still a strong level that indicates moderate growth in the economy, despite a small decline. We pay particular attention to the price components, which started to rise again last month due to higher energy prices.”