Earnings Season Drives European Market Optimism

Financial and Industrial Performers Provide Momentum

Defense Sector Consolidation and Strategic Partnerships

Economic Indicators Awaited as Markets Weigh Inflation Outlook

Source: CNBC

Key points:

Indonesia's central bank paused its aggressive rate-cutting campaign this week, to focus instead on getting banks to lower loan costs. However, companies say banks aren't the problem - it's government policy.Businesses are shying away from investing despite government efforts to stimulate Southeast Asia's largest economy, citing policy uncertainties one year into President Prabowo Subianto's term. Consumers are also cautious about spending due to job insecurity.Bank Indonesia (BI) unexpectedly maintained its policy rate at 4.75% on Wednesday, confounding market expectations for a fourth straight cut. It says it will prioritise improving policy transmission, underscoring a tepid response to stimulus measures and slow credit uptake in the $1.4 trillion economy.

While BI has lowered its benchmark rate by 150 basis points since September last year, lending rates have only decreased by 15 basis points, a disparity Governor Perry Warjiyo attributed to depositors demanding higher savings returns.Warjiyo acknowledged that credit demand had been dampened by businesses' cautious stance and reliance on internal funding.Shinta Kamdani, chairwoman of the Indonesia Employers Association, said the investment climate is the key factor deterring businesses, rather than borrowing costs and banks' strict lending requirements.

"Sluggish economic growth is largely caused by uncertainty and unpredictability in the investment climate, both domestically and internationally, forcing businesses and investors to adopt a wait-and-see approach or refrain from expanding their operations," said Kamdani, who is also chief executive of conglomerate Sintesa Group.

RANGE OF CONCERNS

Interviews conducted by Reuters with a dozen business leaders across sectors such as retail, mining, agriculture and property showed concerns over Prabowo's policies, including increased state control in industries and reduced communication with the business community as well as ineffective programmes.Many of the business people declined to be named fearing repercussions for speaking publicly."Many mining businesses are afraid of investing further, which can be seen by a lack of mineral exploration in Indonesia, due to investment uncertainties," a mining executive said.

Prabowo, who promised to continue the business-friendly policies of his predecessor Joko Widodo, marked his first year in office on October 20. Since he came to power, his government has taken a stricter stance on industries such as palm oil and tin, sparking fears of asset seizures and shorter-duration mining quotas.

PUBLIC SPENDING FOR GROWTH

Prabowo aims to boost economic growth to 8% from around 5% through programmes such as free school meals and food security. However, these initiatives have led to fiscal cuts for provincial governments.An automotive executive said cuts could lead authorities to make up lost revenue from other areas, such as increased auto tax, which, in turn, would hit car sales."We expect a shift from traditional fiscal orthodoxy, implying a bigger role for public spending in supporting growth and expecting to crowd in private sector players," DBS economist Radhika Rao said.

"Domestic firms are likely to seek demand visibility before making fresh capex commitments," she said.Loan growth, which hit a three-year low in July, remains subdued at 7.7% in September, below BI's target range of 8-11% in 2025.

AWAITING STIMULUS RESPONSE

The government has launched several stimulus measures, including a $2.8 billion package for the fourth quarter and $12 billion transferred from the central bank to state banks, aimed at boosting purchasing power following deadly protests in August over lawmakers' enhanced benefits and widespread job losses.Still, banks have 2,374.8 trillion rupiah ($143.3 billion) in undisbursed loans as of September, more than a fifth of their approved pipeline, according to BI.

Starting December 1, BI plans to incentivise banks to lower lending rates by reducing reserve requirements.Mira Arifin, Indonesia country executive at Bank of America, said banks were competing to collect funds by giving higher rates prior to BI's easing cycle and that likely caused their funding costs to be locked in for a longer term.Businesses, meanwhile, are waiting for clearer signs of economic recovery, including lower bank rates, before taking on loans, said Victor Matindas, head of research at Bank Central Asia, Indonesia's largest private lender.

"NEVER MIND EXPANSION"

Consumer confidence fell to its lowest since 2022 last month. But while not all economic data has been negative, a retail firm executive said doubts over the numbers have made it difficult to make investment decisions.

On the ground, businesses are feeling the pinch.

Adhikara Joshua, 32, owner of a coffee shop Kopi Kila on the outskirts of Jakarta, has shelved plans to open a second branch, citing a 20% drop in sales this year and rising coffee bean prices. "Never mind expansion for now," he said.Similarly, Edwina Ananda, 31, who runs online clothing shop Smitten by Pattern, cited a one-third drop in sales amid weak purchasing power and a shift in consumer preferences toward offline shopping.While considering opening a physical store with a bank loan, Ananda remains cautious. "Our current focus is to pay up our existing loan because paying interest is quite a significant expense amid this market uncertainty."

Source: TradingView

The UK private sector grew faster than expected in October as a yearlong manufacturing slump came to an end, according to a closely watched survey that suggests the economy is starting to shake off the impact of Labour's tax rises.S&P Global's composite purchasing managers' index increased to 51.1, up from 50.1 the month before, flash estimates published Friday show. The reading was stronger than the 50.5 forecast by economists and remained above the 50 threshold indicating expansion.

Firms said input price pressures eased to the lowest level since November, while new orders improved. This helped cool down job losses to levels last seen in May when businesses started adjusting to the government's increase in employment costs. The improvement was most pronounced among manufacturers, which returned to growth for the first time since October last year."October's flash UK PMI survey brings hope that September was a low point for the economy from which business conditions are starting to improve," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "Business confidence has also brightened slightly, job losses have moderated, and inflationary pressures are coming back to levels consistent with the Bank of England's 2% target."

The report will provide some relief for Chancellor of the Exchequer Rachel Reeves, whose tax hikes have been blamed for stoking inflation and dampening growth. It shows the economy moving past the worst ahead of Labour's upcoming budget on Nov. 26.However, speculation that Reeves will raise taxes and cut spending again to stabilize public finances is acting as a drag on growth. Services firms only reported a modest uptick in activity, citing weak consumer sentiment and clients postponing decisions, S&P's survey showed.

Williamson said that "the overall pace of growth signalled by the PMI remains consistent with only sluggish GDP growth of around 0.1%."Manufacturing provided a more optimistic picture. Factory output grew at the fastest pace in over a year, thanks to improving domestic demand and restocking efforts.The sector is still reeling from the cyberattack at Jaguar Land Rover. S&P said that "survey respondents in the automotive supply chain again commented on challenging business conditions following the JLR cyberattack, despite a boost from the phased restart of manufacturing operations in October."

Exports continued to deteriorate as US tariffs weighed on demand for UK goods and customers in Europe and Asia cut back on spending.Firms are becoming more optimistic about the year ahead. Business expectations improved to second-highest level since October 2024. Service providers cited new product launches, while manufacturers said they're planning to tap new export markets.

Source: Bloomberg Europe

The UK private sector economy gained momentum in October, with the S&P Global Flash UK PMI Composite Output Index rising to 51.1 from 50.1 in September, marking a two-month high.

Manufacturing production expanded for the first time in 12 months, while the service sector continued its modest growth trend. The manufacturing output index jumped to 51.2 from 45.7 in September, reaching a 13-month high, while the manufacturing PMI rose to 49.6 from 46.2.

New business volumes increased in October, contributing to the slowest rate of private sector job cuts since May. Input price inflation moderated to its lowest level since November 2024, leading to a slower rise in output charges.

The service economy showed sluggish growth, with many firms citing subdued consumer sentiment and deferred corporate decision-making ahead of the November Budget. Manufacturers linked higher output to restocking efforts and a tentative improvement in domestic demand, though the JLR cyberattack continued to impact the automotive supply chain despite a phased restart of operations.

Export sales continued to decline, particularly in manufacturing, with companies noting weak global demand and the impact of US tariffs. Job losses moderated but persisted as businesses dealt with high salary pressures and excess capacity.

Business confidence improved slightly, reaching the second-highest level since October 2024. Service providers attributed this to early signs of market improvement and planned product launches, while manufacturers cited long-term investment strategies and plans to enter new export markets.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that while October's data brings hope of improvement, the pace of growth remains consistent with only sluggish GDP expansion of around 0.1%.

He added that businesses are "treading cautiously" ahead of the upcoming Budget, which could significantly influence business sentiment in the coming months.

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