Factories across Asia and the euro zone reported a general loss of momentum last month that speaks volumes about the need for more policy stimulus on top of Japan’s latest efforts to ignite growth.
 
A second month of price-cutting in the euro zone, alongside only tepid expansion in Germany—the bloc’s growth engine—and contractions in France and Italy, will be disconcerting for the European Central Bank (ECB) as it faces a real risk of deflation.
 
Meanwhile, regional manufacturing surveys from Asia were littered with unwelcome landmarks, including a five-month low for activity in China, a four-month trough for South Korea and a 14-month low for Indonesia. Japan’s bold move in expanding its already massive asset buying programme raised expectations the ECB will eventually have to bite the bullet on quantitative easing (QE), but the move faces opposition from Germany.

"You are going to need some out-turns that are weaker than these to convince them they need to do QE but it is a trickle effect and every month you get the absence of a pick-up you get a month closer to QE," said Victoria Clarke at Investec.
 
"China is on a bit of a softer growth path than it has been, but there is nothing there that suggest it is heading further south. The authorities are going to continue to provide a floor to growth that limits any downside and that is being evidenced."

Beijing has already cut taxes, quickened some investment projects, offered short-term loans to banks, instructed local governments to spend their budgets and reduced the amount of deposits that some banks hold as reserves to spur lending.
 
Readings on Japanese activity were delayed by a holiday but will likely be overshadowed by the Bank of Japan's (BOJ's) stimulus decision on Friday. The central bank's move stands in marked contrast with the US Federal Reserve, which on Wednesday ended its own quantitative easing, judging that the US economy had recovered enough to dispense with the emergency flood of cash into its financial system.
 
Some form of quantitative easing—buying asset-backed securities, corporate bonds or sovereign debt—is one of the last policy options the ECB has left to fight deflation risks and rekindle growth in the monetary union.

Euro zone inflation was just 0.4% in October, well within what the ECB terms a "danger zone" and the surveys showed that further discounts at the factory gate failed to drive up new orders.
 
Markit's final October manufacturing Purchasing Managers' Index (PMI) was 50.6, beating September's 50.3 but shy of an earlier flash estimate of 50.7. October marked the 16th month the index has been above the 50 line that divides growth from contraction.
 
An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good indicator of economic growth, rose to 51.5 from September's 51.0, although that too was lower than the flash reading, which came in at 51.9.
 
"Perhaps most worrying is the trend in new orders, a key bellwether of future output growth," said Rob Dobson, senior economist at Markit Plc. "It is hard to see any significant near-term boost to performance."
 
Germany's manufacturing industry returned to modest growth last month but new business fell slightly for a second month as Russian sanctions and a general economic slowdown weighed on demand.
 
Adding to the gloom, the surveys showed French factory activity contracted faster than in September and Italian manufacturing slowed at the sharpest rate in 17 months.
 
UK factories reported a decent month of October. Activity expanded at the fastest rate in three months but weak demand from the euro zone, its main trading partner, sent export orders tumbling at the fastest pace since January 2013.

HSBC Plc's version of the China PMI, compiled by Markit, was a whisker firmer at 50.4 in October, from September's 50.2, but showed growth slowing in output and new orders, while companies trimmed staff levels for the 12th straight month.
 
China's official PMI for services fell to 53.8 in October, down from September's 54.0 and the weakest reading since January, the National Bureau of Statistics said. The comparable measure for manufacturing eased to 50.8 in October, from September's 51.1, confounding analysts' expectations for a an improvement to 51.2.
 
Foreign demand was partly to blame and the same trend was evident in South Korea, where new export orders were down for a third straight month and at the lowest in 14 months.