few weeks ago when USD took off on speculation that tapering (slowing of the pace of QE purchases) was just around the corner, we compared it with a tornado rolling through markets sucking up assets. The reaction to today’s PMI numbers suggest that it’s more like Groundhog Day, with the US economy apparently in for more winter yet.
European markets started the day off on a positive note with manufacturing PMI improving for some key economies particularly Spain and the UK. US PMI turned everything on its head, however, after dropping back under 50 into contraction territory. This reminded the street that the QE3 program may remain in place for a lot longer if it is needed to offset the negative impact of sequestrations spending cuts.
This news sent European stocks into a tailspin. US indices were choppy but managed to close the day higher. Action in the Nikkei, which has crashed over the last few sessions despite no changes to QE reminds us that the longer or higher QE spec boosts US indices the more vulnerable they may be should a correction come.
The main effect of the PMI disappointment was on USD which fell off a cliff as traders realized that PMI in contraction number means QE is unlikely to be cut back any time soon, causing a stampede for the exits as traders unwound positions based on tapering speculation.
The impact once again was mainly seen in currency markets and I have never seen so many currencies post big figure or near or more on the greenback intraday including AUD, NZD, JPY, CAD, CHF and more. AUD and NZD were both up over 2.0% at one point, as the majors that had been hit the hardest in May and become most depressed, it’s to be expected they would have the biggest bounce. CAD rallied on improving commodities and an improved Canadian PMI report.
JPY perhaps had the most technically important move of the day, breaking down through the big psychological barriers or 100.00 against USD and 130.00 against EUR. Gold also had a big breakout, clearing $1,400.
Today looks to be an active day for trading across the Asia Pacific region. While AUD and NZD could see some early backing and filling, this afternoon’s RBA interest rate decision could keep FX markets hopping right through the day. The Nikkei, which had dipped briefly below 13,000 overnight may also remain active and create trading opportunities.
Highlights of overnight announcements include:
US ISM manuf PMI street 50.9 vs previous 50.7
US Markit manuf PMI 52.3 vs street 52.0
Brazil manuf PMI 50.4 vs previous 50.8
Canada manuf PMI 53.2 vs previous 50.1
Mexico manuf PMI 51.7 no change
Global manuf PMI 50.6 vs previous 50.4
Singapore electronics index 51.4 vs previous 51.2
Singapore PMI 51.1 vs previous 50.3
UK manuf PMI 51.3 vs street 50.3, previous revised up to 50.2 from 49.8
Germany manuf PMI 49.4 vs street 49.0
France manuf PMI 46.4 vs street 45.5
Spain manuf PMI 48.1 vs previous 44.7
Italy manuf PMI 47.3 vs street 46.2
Greece manuf PMI 45.3 vs street 45.0
Eurozone manuf PMI 48.3 vs street 47.8
Russia manuf PMI 50.4 vs previous 50.6
South Africa manuf PMI 50.4 vs street 49.9
Other major announcements include:
US construction spending 0.4% vs street 0.9%
Upcoming significant announcements include:
5:00 pm EDT US vehicle sales street 15.1M
2:30 pm AEST Australia interest rate decision 2.75% no change expected
8:00 am BST Spain unemployment change street (50K)
9:30 am BST UK construction PMI street 49.8
8:00 am EDT Brazil industrial production street 7.2%
8:30 am EDT Canada trade balance street ($0.5B)
8:30 am EDT US trade balance street ($41.1B)