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 The data seems sure to dishearten the European Central Bank,
struggling to spur growth and revive disconcertingly low inflation
and whose head Mario Draghi again raised prospects on Monday of
using extra unconventional measures if needed.
In China, signs of a weakening labor market reinforced expectations
that authorities in Beijing would further relax financing conditions
in coming weeks.
"The Chinese number beat expectations but it's not really going
anywhere," said Peter Dixon, senior economist at Commerzbank. "It's
indicative of an economy that doesn't have a lot of momentum behind
it. It's doing okay but we would be looking for a bit more
strength."
The HSBC/Markit Flash China PMI rose to 50.5 in September from
August's final reading of 50.2. Economists polled by Reuters had
expected factory growth to stall at 50.0, citing deteriorating
business confidence and the growing drag from the cooling property
market.
Markit's Eurozone Composite Flash Purchasing Managers' Index, based
on surveys of thousands of companies across the region and seen as a
good indicator of growth, dipped to a nine-month low of 52.3, shy of
expectations in a Reuters poll for no change from August's 52.5.
INFLATION OUTLOOK POOR
The index has been above the 50 mark that separates growth from
contraction since July 2013.
But Markit said the latest survey pointed to third-quarter economic
growth of just 0.3 percent - not enough to generate strong
inflation.
"This survey does nothing to alter the picture of a struggling euro
zone economy, intensifying the pressure on governments and the ECB
to provide more policy support," said Jennifer McKeown, senior
economist at Capital Economics.
Growth ground to a halt in the bloc in the last quarter as Germany's
economy shrank and France's stagnated, and the ECB surprised markets
earlier this month by cutting benchmark lending and deposit rates
further and said it would buy asset-backed securities and covered
bonds.
Notwithstanding Draghi's remarks on Monday, no more changes to
policy are expected when the Governing Council meets next week. [ECILT/EU]
Consumer inflation in the 18 countries sharing the euro rose to just
0.4 percent year-on-year in August, slightly higher than July's 0.3
percent but staying so far below the ECB's 2 percent target ceiling
that it was not enough to radically alter the outlook.
According to the PMIs, firms cut prices again this month - although
not as steeply as they did in August. The composite output price
index rose to 49.2 from 48.9 but has now been below the 50-mark for
a full 2-1/2 years and the discounting may still not be paying off.
The manufacturing PMI for Germany, Europe's largest economy, slumped
to 50.3, its lowest reading since June 2013 and below all forecasts
in a Reuters poll of 32 economists. Its services PMI however blew
out the top end of forecasts.
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A service industry PMI for France, the bloc's second-biggest
economy, sank to 49.4 after just two months in growth territory.
"The German economy is still ticking along at a reasonable rate of
growth but it's by no means impressive. The overall picture for
France when you put this all together is another quarter of
stagnation at best," Chris Williamson, Markit's chief economist
said.
JOB LOSS
Shares were on course for a third day of losses on Tuesday after the
downbeat European data, though the Chinese factory survey gave
commodities a break from recent selling.
"We still expect some more measures (from Beijing authorities) to
support growth, such as stimulating infrastructure investment,
relaxing property market policies and some more monetary easing
steps," said Louis Kuijs, an economist at RBS in Hong Kong.
Bets against overt policy easing are in line with remarks by senior
leaders including Finance Minister Lou Jiwei, who said over the
weekend that China would not dramatically alter its policy based on
any one indicator.
But the government's promises to desist from ramping up credit
supply are increasingly being tested by a run of data showing that
the world's second-biggest economy is sliding into a deeper
slowdown.
Tuesday's PMI showed a measure of employment shed more than a point
to drop to 46.9, its lowest since February 2009 during the global
financial crisis, when a collapse in exports threw tens of millions
of Chinese out of work.
A hefty drop in employment could raise alarm bells for the
government, which has indicated it will tolerate slower economic
growth below 7.5 percent for the year as long as employment is not
affected.
"The reading is still weak and we believe that the economy has
shifted toward 7 percent year-on-year growth," Credit Agricole
economists said in a note to clients.
(Editing by John Stonestreet)
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