Economic sentiment unexpectedly deteriorated at the start of the quarter. October's headline index fell 0.7 points from a marginally firmer revised 96.3 in September to 95.6, also 0.7 points short of the market consensus. This was its weakest reading since February and so further below its 100 long-run average.

At a sector level, confidence worsened quite sharply in industry (minus 13.0 after minus 11.0). However, there were gains in retail (minus 7.3 after minus 8.3), construction (minus 4.9 after minus 5.5) and in the household sector (minus 12.5 after minus 12.9). Services (7.1) were unchanged.

Regionally, national sentiment weakened significantly in both France (93.6 after 98.3) and Spain (102.4 after 107.2) and also deteriorated in Italy (99.5 after 100.0). Germany (90.2 after 89.4) was the only member of the larger four economy group to post a rise, albeit from an already weak level, and just Spain is now above the common 100 historic mean.

Inflation expectations rose. Hence, expected selling prices were up slightly in manufacturing (6.5 after 6.3) and more notably in services (14.0 after 12.3). In addition, inflation expectations in the consumer sector (13.3 after 11.0) also increased, hitting their highest mark since March.

The October update increases the likelihood that superficially respectable third quarter GDP growth will not be repeated in the current period. The ECB remains on course to ease again in December although with inflation expectations up across the board, market talk of a possible 50 basis point cut is likely to be tempered somewhat. Today's reports lift the Eurozone RPI to 6 and the RPI-P to 8, both measures showing a marginal degree of overall economic underperformance versus market expectations.

Forecasters see Eurozone economic sentiment nearly flat at 96.3 and industry sentiment pretty steady at minus 11.0 from the prior month. Consumer sentiment is expected slightly better at minus 12.5 versus minus 12.9 in September.

Released by the European Commission, the economic sentiment index (ESI) provides a broad measure of both business and consumer sentiment. Results are available for all participating countries and aggregated to the Eurozone and European Union level. The survey is very detailed and offers information on demand, output and inflation.

The survey offers key sentiment data across the European Union and the Eurozone region. Data are available for each country and are aggregated for both the Eurozone and EU. It is conducted by the European Commission rather than Eurostat, the compiler of most other EMU data. The index is a broad measure of both business and consumer sentiment in the EU members. Because of its coverage of all the EU countries it is highly regarded in the financial markets as a good indicator of the mood of consumers and industry in each country. It is also normally a good indicator of quarterly GDP.

Confidence indicators are calculated for industry, services, construction, retail trade and consumers. In turn, they are combined into an overall composite number, the economic sentiment indicator (ESI). The data are seasonally adjusted and defined as the difference (in percentage points of total answers) between positive and negative answers. The survey also covers other areas of the economy that are not explicitly included in the ESI. In particular, responses to questions about the inflation outlook are used by the ECB as one means of measuring inflationary expectations.