And finally, after a choppy week, Europe’s stock markets have closed with some decent gains.

In London, the FTSE 100 has closed 74 points higher at 5,860 points, a gain of 1.3% today (which still leaves it 1% lower for the week).

Rolls-Royce ended the day as the top riser, up 7.4%, amid optimism that Covid-19 vaccines and treatments such as Remdesivir will, in time, allow the world economy to return to normal.

Banks also had a good day, thanks to Barclays’ forecast-beating results. It ended the day 7% higher, with Lloyds up 5%, HSBC gaining 4.7% and Standard Chartered up 4.2%.

InterContinental was among the fallers, though, down 1.4% after reporting a sharp fall in revenue in the last quarter.

Just Eat (-1.5%) and Ocado (-1.2%) also lost ground.

European stocks also had a better day, with Germany’s DAX closing 0.6% higher and France’s CAC up around 1%.

Here are the main stories of the day.

So on that note, have a lovely weekend. GW

Europe is experiencing a K-shaped recovery, with factories powering on but services growth faltering, writes Davide Oneglia, economist at independent investment research provider TS Lombard.

Here’s his analysis of today’s eurozone PMI reports:

Despite the resurgence in Covid-19 cases in the Euro Area (EA), greater testing capacity, more effective therapies, and the increase in ICU beds relative to March/April have allowed EA governments to limit their responses to local lockdowns so far, which cushion the impact on businesses.

But rising infections still affect consumer behaviour sparking a negative feedback loop between confidence and economic activity.

While a “double dip” is not our central case yet, we see growing risks to our below-consensus growth and inflation forecasts for 2020-21.

October flash PMIs published this morning show that the recovery at sector level remains “Kshaped” with manufacturing grinding on despite virus concerns (54.4 from 53.7 in September) while services slowed further (chart 1).

EA governments have been forced to extend employment and income support into next year but the measures are less generous than before, which also partly explains why employment PMIs and new vacancy indices are still very subdued across the EA.

Just in: The US economy is shrugging off election uncertainty and the Covid-19 pandemic, growing at its fastest pace since early 2019.

That’s the message from Markit’s latest PMI survey, which shows that business activity has risen at the fastest rate for 20 months in October. Business optimism improved markedly.

The upturn was largely driven by service providers, though manufacturing firms also reported a further solid increase in production.

This has lifted Markit’s flash US composite output index to 55.5, from 54.3 in September. That’s the highest reading since February 2019, signalling faster growth.

However, the survey did show a slight slowdown in new business growth, with manufacturers seeing a drop in new export orders.

But overall, the picture looks decent.

Chris Williamson, chief business economist at IHS Markit, says:

“The US economy looks to have started the fourth quarter on a strong footing, with business activity growing at a rate not seen since early 2019. The service sector led the expansion as increasing numbers of companies adapted to life with COVID19, while manufacturing continued to report solid growth amid rising demand from households and businesses.

A slowdown in hiring and weaker new order inflows were in part attributable to hesitancy in decision making ahead of the presidential election.

More encouragingly, business optimism surged higher, indicating that firms have become increasingly positive about prospects for the coming year amid hopes of renewed stimulus, COVID-19 containment measures gradually easing and greater certainty for businesses and households after the presidential elections.”

The economic recovery from the first wave of the Covid-19 pandemic began to flatten out this month in the UK and threatened to reverse and trigger a double-dip recession in the eurozone after new restrictions to tackle the second wave squeezed business activity.

As the UK government moved to bolster its business support schemes, a closely watched survey of business activity showed private sector growth in the UK falling back as hospitality and transport companies strug gled to cope with regional lockdown measures....

Today’s PMI data from the eurozone and the UK shows that Europe’s recovery from the Covid-19 pandemic has stalled, as cases rise again.

So say George Buckley and Chiara Zangarelli of Nomura, who predict that the UK economy will shrink again this winter (after a record contraction in April-June).

They write:

The story from this morning’s European PMI numbers suggests that countries with rising virus numbers and restrictions are moving quickly back into contraction territory, while those with fewer virus cases remain more positive. And it is the service sectors that are being hit harder than manufacturing for obvious reasons. Even if virus case numbers in Germany (which are rising more quickly now) remain below those of France we do not expect German output to be immune to a weakening outlook across Europe.

The UK PMI has recovered more quickly thus far than its European counterparts, but it lost more ground in today’s October print and the declines are unlikely to stop there. Our view of a lopsided-W shaped recovery in the UK (i.e. a second, but smaller, dip in GDP over the winter months) points to the need for more policy easing from the Bank of England at next month’s meeting.

It’s important to remember when looking at the PMIs that they are telling us something about monthly growth rates of activity. By moving back below 50, this implies that the nascent recovery in output levels never really got properly going – Figure 1 attempts to convert the PMIs from growth rates into a level series, and it shows that the recovery in output has essentially stalled at a very low level.

The drop in UK private sector growth this month, and the full-blown contraction in the eurozone, shows that economic momentum is weakening - just as a winter of tighter restrictions looms.

Dean Turner, economist at UBS Global Wealth Management, says the UK will slow sharply in the final quarter of 2020, following a summer rebound.

“The flash PMIs point to the UK economy posting another month of expansion in October, although momentum is clearly fading. Moreover, fresh challenges still lie ahead, given the renewed social restrictions which are impacting economic activity across the UK and Europe.

A common theme amongst this morning’s PMIs across Europe is the resilience of manufacturing as compared to services. Given that service industries will feel the greatest burden from new restrictions to stem the spread of Covid-19 infections, this isn’t a great surprise. However, as services are a higher share of economic activity, the conclusion is that the final quarter of this year will see the pace of growth slow dramatically from the third quarter bounce.

Hugh Gimber, global market strategist at J.P. Morgan Asset Management, says Britain is now facing a two-speed economy (with services firms in the slow lane, or even on hard shoulder).

“Today’s UK data paint a picture of an economic recovery that is now clearly at risk of losing steam. Those of a “glass half full” disposition can point to the robust bounceback in retail sales, while the pessimists will quite reasonably question the durability of this spending given the worrying slide in consumer confidence. The two-speed nature of the pandemic economy is increasingly evident, with PMI data showing the manufacturing sector holding up better than a services sector that is grappling with falling demand as new social-distancing restrictions take hold.

“Balancing the need for further support against a reluctance to exacerbate the UK’s already weak fiscal position is a near impossible task for the Chancellor. This mixed bag of data will do little to settle the current debate in government about where this balance should be struck.”

Newsflash: the UK economy is slowing this month, as tighter Covid-19 restrictions hit travel, leisure and hospitality companies.

Data firm Markit reports that business activity has increased so far this month, but at a much slower rate than September - and at the slowest pace since June.

Service sector companies are bearing the brunt of the pandemic, with new business orders dropping, for the first time in four months.

Markit explains:

This reflected a much weaker contribution from the service economy, with survey respondents often commenting on tighter restrictions across the hospitality sector and the impact of local lockdowns on general consumer spending.

As a result, service providers reported a decline in new business for the first time since June, which contrasted with another solid expansion in new orders received by manufacturing companies in October.

This pulled Markit’s Flash UK Composite Output Index down to 52.9 in October, down from 56.5 in September. The index is based on interviews with purchasing managers at companies across the UK.

It had peaked at 59.1 in August, as the economy reopened and the Eat Out to Help Out scheme boosted spending.

Anything over 50 points shows growth - so the UK is doing better than the eurozone, where Covid-19 cases began rising again sooner.

But this is worrying - indicating that the economy is losing steam, just as more parts of the UK head into tighter lockdown restrictions.

Markit adds:

Survey respondents overwhelmingly suggested that the latest setback for service sector output was due to a renewed downturn across the travel, leisure and hospitality industries amid tighter restrictions on trade and local lockdown measures.

Here’s the details:

• Flash UK Services Business Activity Index Oct: 52.3, 4-month low (Sep final: 56.1)
• Flash UK Manufacturing Output Index Oct: 56.4, 4-month low (Sep final: 59.0)
• Flash UK Manufacturing PMI Oct: 53.3, 3-month low (Sep final: 54.1)

Newsflash: The eurozone’s private sector is shrinking again, as the latest restrictions to combat rising Covid-19 cases hit growth.

Data firm Markit reports that business activity fell back into decline across the eurozone in October.

Activity across the eurozone’s services sector slumped, more than wiping out faster growth at factories.

Markit explains:

Germany was the only bright spot, as France and the rest of the region as a whole fell deeper into decline.

The rate of job losses eased, but forward -looking indicators deteriorated: inflows of new business showed a renewed decline and business optimism for the year ahead slipped to the lowest since May. Deflationary pressures meanwhile eased as business costs rose at a faster rate

This dragged Markit’s flash PMI Composite Output Index down to a four-month low of 49.4.

Significantly, that’s below the 50-point mark, which indicates that activity fell across eurozone companies

Here’s the details:

• Flash Eurozone PMI Composite Output Index at 49.4 (50.4 in September). 4-month low.
• Flash Eurozone Services PMI Activity Index at 46.2 (48.0 in September). 5-month low.
• Flash Eurozone Manufacturing PMI Output Index at 57.8 (57.1 in September). 32-month high.
• Flash Eurozone Manufacturing PMI at 54.4 (53.7 in September). 26-month high.

More details and reaction to follow...

In the City, the FTSE 100 index has jumped by 0.75% in early trading, away from the five-month lows we saw yesterday.

The blue-chip index has gained 53 points to 5842, led by bank shares with Barclays up 4%, and Lloyds and HSBC both gaining 3.2%.

Barclays beat forecasts this morning, by reporting pre-tax profits of £1.1bn in the last quarter.

But the bank also raised its provisions against bad loans by an additional £608m, to a total of £4.3bn - a sign of the economic damage being caused by the pandemic.

Analysts are warning that the UK retail sector faces a tough autumn and winter, despite growing sales by a record 17.4% in the last three months.

Lynda Petherick, head of retail at Accenture UKI, says some retailers will be dreading the weeks ahead:

“This should be a time for excitement as the crucial “golden quarter” for retail is now underway. However, with lockdown measures across the UK tightening by the day, retailers are braced for a difficult and unconventional end to the year.

“The months ahead will be different from previous years – retailers are already encouraging people to shop online and to shop earlier than usual ahead of Christmas. It’s up to brands to adapt and implement strategies that reflect changing consumer behaviours, such as catering to more responsible purchasing or creating virtual experiences to work alongside, or even replace, their usual in-store experience.”

Jeremy Thomson-Cook, chief economist at Equals Money, fears rising unemployment will leave some families struggling this winter:

“Growth in the retail sector continued in September, but concerns will also be on the rise over whether the sector is resilient enough to get through what is shaping up to be a dark winter for the UK economy. Food store growth is expected to remain strong with consumers likely to overspend on the upcoming festive season as a treat to themselves after a tough year, especially in areas where bars and restaurants are closed or closing to due to new Covid-19 lockdown measures.

“The elephant in the room remains just how strong consumers can be in an economy that sees those without work, or the ability to work with less cash in their pockets, as a result of the end of the initial furlough scheme. The government’s improved offer is a start but will still leave a lot of people, through no fault of their own, with very little to live on through this winter.”

Aled Patchett, head of retail and consumer at Lloyds Bank, points out that shops in areas with tighter Covid-19 restrictions will struggle, given the move to online shopping this year.

“Retailers are now hopeful of a more positive golden quarter than expected but many are still concerned about the impact of the new tiered lockdown system and what it’ll mean for shoppers.

Trends we have seen accelerate since the start of the pandemic – including spending migrating to online – are now firmly entrenched and retailers will need to continue adapting their models or risk a torrid winter.”

Despite the slide in consumer confidence, UK retail sales continue to recover from their slump earlier this year.

The Office for National Statistics reports that sales volumes swelled by 1.5% last month, compared to August, and were 4.7% higher than a year ago.

Over the last quarter, sales are a record 17.4% higher -- and around 5.5% higher than before the pandemic started in February.

Spending on household goods has been particularly robust, with millions of office staff still working from home. But fuel and clothing sales are weak - again, with much fewer people commuting than usual, and rather less opportunity to socialise too.

Here are the details:

• In September 2020 retail sales volumes increased by 1.5% when compared with August; this is the fifth consecutive month of growth, resulting in an increase of 5.5% when compared with February’s pre-pandemic level.
  
  
• While food sales have done well in recent months as people have eaten out less, non-food store sales have now made a recovery at 1.7% above their February levels.
  
  
• In the three months to September, retail sales volumes increased by 17.4% when compared with the previous three months; this is the biggest quarterly increase on record as sales picked up from record-low levels experienced earlier in the year.
  
  
• In September, fuel sales volumes were still 8.6% below February with reduced travel as many continued to work from home, and clothing sales volumes were still 12.7% below February.
  
  
• Home improvement sales continued to do well in September with increased sales in household goods and garden items within “other” non-food stores.
  
  
• The proportion of online sales was at 27.5%, compared with 20.1% reported in February, despite small monthly declines across most of the retail sector.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

UK consumer confidence has taken a nasty tumble, raising fears that the economy could go into reverse this winter as new Covid-19 restrictions are imposed.

Research company GfK has reported this morning that its index of consumer morale tumbled 6 percentage points to minus 31 in the first half of October. That’s the weakest reading since May, when the economy was recovering from its shutdown in March and April.

People are more pessimistic about the general economic picture, and their own personal economic outlook -- with a wave of joblessness looming.

It indicates economic storm clouds are building, as Joe Staton, client strategy director at GfK, explains:

“There’s a worrying threat of a double-dip in consumer confidence as concerns for our personal financial situation and even deeper fears over the state of the UK economy drag the Index down six points this month. Despite low inflation and rock-bottom interest rates, a buoyant housing market and a raft of Government financial stimulus measures, the prospect of rising unemployment is severely depressing our outlook.

Worryingly, this data was collected before the new round of COVID-19 restrictions came into force and the end of the furlough scheme, so this will negatively impact the Index in the run-up to Christmas and the months beyond. Expect the autumn chill to give way to much stormier conditions.

Later this morning we discover how UK companies, and those across the eurozone, are faring this month.

The latest PMI surveys of purchasing managers are expected to show a slowdown this month as tighter Covid-19 restrictions are imposed.

The agenda

• 7am BST: UK retail sales for September
• 9am BST: Flash eurozone PMIs for manufacturing and services in October
• 9.30am BST: Flash UK PMIs for manufacturing and services in October
• 2.45pm BST: Flash US PMIs for manufacturing and services in October