Author: Fiona Craig

Eurozone private sector activity expanded at its fastest pace in 41 months in September, according to preliminary PMI survey data released by S&P Global.

The Flash Eurozone Composite PMI Output Index increased to 53.1 from 52.0 in August, reaching its highest level since April 2023.

The index remained above the 50.0 level separating expansion from contraction for a third consecutive month.

Services and Manufacturing Activity Increase

Growth was recorded across both services and manufacturing during September.

The Services Business Activity Index rose to 53.0 from 51.6 in August, reaching a 10-month high.

The Manufacturing Output Index increased to 53.4 from 53.3, its highest reading in 55 months, while the headline Manufacturing PMI remained unchanged at 52.7.

Germany recorded a third consecutive monthly expansion, with activity increasing at its fastest rate in almost a year.

France returned to growth for the first time in 10 months, while activity also expanded across the rest of the eurozone.

New Orders Record Largest Increase Since May 2022

New business increased for a third consecutive month, with the rate of growth reaching its highest level since May 2022.

Export orders also increased for a second consecutive month following 53 months of declines. The improvement was primarily driven by manufacturing.

Eurozone employment increased modestly for the second consecutive month. Services companies added staff, while manufacturing employment was unchanged.

Germany recorded its fastest rate of job creation since mid-2023, while employment continued to decline in France.

Price Pressures Increase

Input costs and prices charged by eurozone businesses increased at their fastest rates in four months.

The increases were recorded across both manufacturing and services and among the major eurozone economies covered by the survey.

Business confidence regarding activity over the coming 12 months declined to a three-month low.

S&P Global said weaker expectations among French businesses contributed to the decline, while sentiment in Germany was unchanged.

S&P Global Estimates 0.4% Quarterly GDP Growth

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the preliminary PMI readings were consistent with eurozone GDP increasing at a quarterly rate of 0.4%.

He added that “the resilience of economic growth amid the headwinds of geopolitical issues and rising prices will likely embolden the ECB to hike interest rates again before the end of the year.”

The interest-rate assessment represents Williamson’s interpretation of the survey data rather than a confirmed European Central Bank policy decision.

Eurozone government bond yields moved lower on Wednesday as oil and natural gas prices declined amid developments surrounding U.S.-Iran diplomacy.

Germany’s 10-year Bund yield, a benchmark for the euro area, fell to 3.448%, extending its decline from multi-month highs reached earlier in September.

At the shorter end of the yield curve, Germany’s two-year Schatz yield declined to 3.19%, as markets reassessed expectations for further interest-rate increases from the European Central Bank.

European bond yields followed a similar move in U.S. Treasuries, where yields declined across maturities following comments from U.S. President Donald Trump indicating openness to talks with Iranian representatives at the United Nations General Assembly.

Oil and Natural Gas Prices Decline

The move in government bonds coincided with declines in crude oil and European natural gas prices.

A senior Iranian official told Reuters that the Strait of Hormuz could reopen to international maritime traffic within seven days if Washington lifted its naval blockade of Iranian ports and reduced military pressure.

Brent crude subsequently fell below $100 a barrel, while European wholesale natural gas futures also moved lower.

Lower energy prices prompted market participants to reduce some expectations for additional European Central Bank interest-rate increases after the central bank raised rates two weeks earlier.

French Government Bonds Underperform German Bunds

French government bonds underperformed their German counterparts amid continued attention on France’s fiscal position and domestic political situation.

Official projections put France’s debt-to-GDP ratio at 119.3% in 2026, rising to 121.7% in 2027.

France’s 10-year OAT yield has increased by more than 90 basis points during 2026, contributing to a wider spread between French and German government bond yields.

The widening spread indicates that investors are demanding a higher yield to hold French government debt relative to German Bunds.

Eurozone PMI Data in Focus

Market attention is also turning to preliminary Eurozone Purchasing Managers’ Index data for September.

The figures will provide an indication of private sector activity across the currency bloc following recent increases in energy costs and changes in monetary policy.

Investors will also be monitoring the individual readings from major Eurozone economies, including Germany and France.

JPMorgan upgraded BP (LSE:BP.) to Overweight from Neutral and raised its price target to 675 pence from 550 pence as the bank revised its ratings across European oil companies.

The bank also downgraded TotalEnergies (LSE:TTE) to Neutral amid its reassessment of sector valuations and commodity price conditions.

JPMorgan’s Overweight-rated European oil companies now include Shell, BP, Eni and Galp.

“Absolute performance is now +20% USD since the Middle East conflict began and recognition of faltering commodity inventories is rising,” analyst Matthew Lofting said in a note.

JPMorgan Raises BP Price Target to 675 Pence

Lofting said BP’s “recent history has been chequered” by operational and strategic inconsistencies and balance sheet constraints.

The analyst said commodity market conditions and BP’s restructuring programme now present “a major opportunity to lower macro procyclicality and high-grade fundamentals into 2028.”

JPMorgan expects BP’s deleveraging to begin accelerating from the second half of 2026. Under the bank’s base case of Brent crude at no more than $75 a barrel, it expects BP’s gearing metrics to move in line with peers by the end of 2027.

The bank estimates that BP’s restructuring programme represents value equivalent to a high-single-digit percentage compound annual growth rate in underlying earnings per share over three years.

JPMorgan Estimates 11% BP Free Cash Flow Yield for 2027

JPMorgan estimates BP could generate a free cash flow yield of 11% in 2027 based on Brent crude at $75 a barrel.

The bank estimates BP’s oil-price sensitivity at approximately 180 basis points for every $10-per-barrel change in crude prices.

According to JPMorgan, BP also has the highest refining sensitivity among Europe’s large-cap oil companies. The bank noted that refining margins are currently around three times their normal mid-cycle levels.

TotalEnergies Downgraded to Neutral

JPMorgan downgraded TotalEnergies to Neutral, although Lofting said the company’s long-term fundamentals “remain well placed.”

The analyst cited multi-year growth supported by the company’s balance sheet and said he had no specific concerns ahead of TotalEnergies’ upcoming Investor Day.

JPMorgan estimates TotalEnergies’ 2027 free cash flow yield at 9.0%, representing a premium of between 100 and 150 basis points to UK oil majors.

The bank said this suggests TotalEnergies’ “industrial strength is somewhat priced in.”

JPMorgan Cites Three Factors in TotalEnergies Rating Change

Lofting identified three considerations behind the TotalEnergies downgrade.

These included the company’s greater direct exposure to Middle Eastern assets amid disruption risks around the Strait of Hormuz, as well as a moderation in underlying exploration and production volume growth to 3% year over year from 4% during the first half.

JPMorgan also cited potential developments associated with France’s domestic political and budgetary calendar, including the possibility of renewed debate over windfall taxes on the energy sector.

JPMorgan Assesses Impact of Higher Oil Prices

Across the European oil sector, JPMorgan estimated that forward free cash flow yields could reach 20% or more if oil prices of $100 a barrel and historically elevated refining margins were sustained.

The bank also identified the possibility of European windfall taxes as a factor that could affect the sector under such a scenario.

UK private sector activity expanded for a third consecutive month in September, although the pace of growth slowed as output growth moderated across both services and manufacturing, according to preliminary PMI survey data.

The S&P Global Flash UK Composite Output Index fell to 51.7 in September from 52.5 in August, its lowest reading for three months.

The Flash UK Services PMI Business Activity Index also declined to 51.7 from 52.5, while the Flash UK Manufacturing Output Index fell to 51.4 from 52.1, reaching a six-month low.

The headline Flash UK Manufacturing PMI, however, increased to 52.0 from 51.7 in August, its highest level for three months.

New Business Declines in September

Total new work across the UK private sector declined slightly in September, reversing the marginal increases recorded in July and August.

The reduction primarily reflected a renewed decline in new business at services companies.

Survey respondents cited lower business and consumer confidence, including pressure on discretionary spending, as factors affecting demand.

Export sales also declined, with the rate of contraction the fastest since June. Manufacturing companies recorded their first reduction in export orders since December 2025, with some respondents citing lower sales to customers in the European Union.

Input Price Inflation Accelerates

Input price inflation increased for a second consecutive month and reached its highest level since June.

Businesses participating in the survey reported increases in energy, fuel and raw material costs.

Prices charged by private sector companies also increased, with the rate of output price inflation reaching its highest level since June.

Employment Falls for 24th Consecutive Month

Private sector employment declined again in September, extending the period of continuous job losses to two years.

The reduction in employment was marginal and less pronounced than the average recorded during the first half of 2026.

Survey respondents cited higher operating costs, efficiency improvements and limited pressure on existing business capacity among the reasons for restrained hiring.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “September is seeing a worrying combination of disappointingly sluggish economic growth and intensifying inflationary pressures, with subdued business confidence and high costs meanwhile continuing to discourage hiring.”

Williamson added: “Output growth across the manufacturing and services PMI surveys has slowed to a pace consistent with the economy growing at a mere 0.1% quarterly rate.”

Business Optimism Holds at Six-Month High

Overall business optimism was unchanged from August, when it reached a six-month high.

Confidence among manufacturers increased to its highest level since February, with survey participants citing planned project starts and increased investment spending on production capacity.

The flash PMI data were collected between 10 and 21 September.