S&P Global PMIs set to show US economic expansion extended into October

• The S&P Global preliminary PMIs for October are likely to show little variation from the September final readings.
• The Federal Reserve will likely trim rates again in November, with PMIs having no significant impact on the decision.
• Financial markets revolve around the potential outcome of the US presidential election. 
• EUR/USD is poised to extend its decline after breaking below 1.0800. 

S&P Global will publish the preliminary estimates of the United States (US) Purchasing Managers Indexes (PMIs) for October on Thursday. The indexes result from surveys of the senior executives in the private sector. They are meant to indicate the overall health of an economy, providing insights into key economic drivers such as GDP, inflation, exports, capacity utilization, employment, and inventories.

S&P Global releases three indexes: The Manufacturing PMI, the Services PMI, and finally, the Composite PMI, which is a weighted average of the two sectors. Readings above 50 indicate that economic activity is expanding, while figures below it represent economic contraction. Such indexes are released every month in advance of other official figures, becoming a key leading indicator of the status of the economy.

According to the September final S&P Global Manufacturing PMI, “the sector moved deeper into contraction territory at the end of the third quarter of the year,” blaming such a result to weaker demand and political uncertainty related to the upcoming US election. The index resulted at 47.3, declining from 47.9 in August. 

On the contrary, the PMI for services suggested that the sector’s output expanded, with the index printing at 55.2 in September. Despite easing from 55.7 in August, the Services PMI signalled a “market monthly increase in service sector output at the end of the third quarter, and one that was among the strongest in the past two-and-a-half years.” 

As a result, the S&P Global Composite PMI posted 54.0 in September, down from 54.6 in August. The report, however, included a worrisome line: “Inflationary pressures strengthened,” with the increases in input costs and output prices hitting 12-month highs for the service sector and six-month highs for manufacturing. 

What can we expect from the next S&P Global PMI report?

Financial markets anticipate a modest improvement in the flash Manufacturing PMI, foreseen at 47.5 in October. The services index is expected to print at 55, while the Composite PMI will likely show little variation from the September reading of 54. 

A poor performance of the manufacturing sector would come as no surprise, and the expected uptick would likely neutralise concerns particularly if the Services PMI keeps indicating a solid expansion in the sector.

Overall, recessionary fears have receded, with the focus shifting to the upcoming presidential election and the potential impact of the outcome on the economy. Indeed, better-than-anticipated figures will boost optimism about the American economy and maintain the Federal Reserve (Fed) on the monetary loosening path. 

The Fed trimmed the benchmark interest rate by 50 basis points (bps) in its September meeting, and market participants expected the central bank would continue cutting rates at an aggressive pace. However, signs of steady growth spooked away such concerns. Fed officials will likely deliver 25 bps cuts in November and December and will continue to do so in the year ahead. PMI figures should deliver an extremely disappointing surprise to trigger concerns and shift these expectations, which is quite an unlikely scenario. 

When will the October flash US S&P Global PMIs be released, and how could they affect EUR/USD?

The S&P Global Manufacturing, Services and Composite PMIs report will be released on Thursday at 13:45 GMT and are expected to show manufacturing output is still in trouble while the service sector remains the strongest. Overall, the anticipated figures represent no significant variation from September final figures.

Ahead of the release, the US Dollar is the strongest currency among major ones, helped by a constant run to safety ahead of the US presidential election. The EUR/USD pair trades below the 1.0800 mark and at fresh multi-week lows. Given tepid European growth-related data, the Euro is among the weakest USD rivals. It is worth noting that the Eurozone PMIs will be released ahead of the US ones and will likely have a negative impact on the local currency.

From a technical perspective, Valeria Bednarik, FXStreet's Chief Analyst, says: “The EUR/USD pair bearish trend is quite evident in the daily chart, with technical indicators maintaining their firm downward slopes, despite being in oversold territory. Other than extreme readings, there are no signs of bearish exhaustion. Even further, the pair is developing below all its moving averages, which gain downward traction far above the current level, reflecting persistent selling interest.”

Bednarik adds: “The pair has an immediate support area at around 1.0750, where it posted several intraday highs and lows back in June and July. Once below it, the next natural support level comes at 1.0700, en route to the year’s low at 1.0601. Near-term resistance lies at around the 1.0840 figure,  while a flat 200 Simple Moving Average (SMA) in the daily chart is the next relevant dynamic resistance, currently at around 1.0870.”