Improved PMI Numbers Refocus and Energize Markets
A flood of better than expected PMI data from around the world overnight has turned the focus away from the political games being played in Washington over the fiscal cliff and back on the improving global economy.
With China leading the charge, many countries around the world posted improving PMI numbers over last month, including India, South Korea, the UK, Spain, Greece, Brazil. The US numbers may give an impact of Hurricane Sandy on the broader economy although the initial reading from Markit Economics suggests that even the US continued to strengthen after the storm and election passed.
Indications of an improving global economy have propelled a number of stock markets higher today with capital flowing out of defensive positions in USD. More importantly, this news has ignited economically sensitive commodities with Dr. Copper building on its breakout, and US crude finally breaking out of its doldrums.
The WTI breakout is particularly important as it is now higher than last month’s peak which was driven by fighting in the middle ease. A rally on anticipation of increased demand rather than the fear of reduced supply has the potential to be more sustainable.
Currencies today have seen major flows of capital from the US back to Europe. Sterling has been gaining on the UK’s improved PMI number. Although continental PMIs were mixed, signs of improvement more troubled countries like Spain and Greece have helped along with improving sentiment that politicians still seem to want to keep the Euro going and may eventually get around to doing what needs to be done even if it takes a long time. At a minimum, fears of an immediate collapse of the Euro continue to recede.
Greek treasury yields have dropped a huge 1.68% today to 14.16% as the country prepares a debt buyback and in response to comments from German Chancellor Merkel over the weekend that Germany may consider a debt haircut in two or three years if the country shows it can manage its public finances responsibly.
The weakest currencies today have been AUD and NZD with the street awaiting tonight’s RBA meeting and the RBNZ meeting on Wednesday night. Soft PMI and retail sales numbers out of Australia have increased speculation that an interest rate cut of at least 25 bps may be on the way and that the pressure could be on the RBNZ to cut rates as well.
Manufacturing PMI numbers from around the world are out this morning. Highlights include:
Japan (last Friday) 46.5 vs previous 46.9
China official Manufacturing 50.6 vs street 50.8 and previous 50.2
China official Service 55.6 vs previous 55.5
China HSBC Manufacturing 50.5 vs street 50.4 and previous 49.5
South Korea 48.2 vs previous 47.4
Australia 43.6 vs previous 45.0
India 53.7 vs previous 52.9
UK 49.1 vs street 48.0 and previous 47.5
Germany 46.8 in line with street and previous
France 44.5 vs street and 44.7
Spain 45.3 vs street 43.9 and previous 43.5
Italy 45.1 vs street 46.0 and previous 45.5
Greece 41.8 vs previous 41.0
Russia 52.3 vs previous 52.9
South Africa 49.5 vs street 47.6 and previous 47.1
Brazil 52.2 vs previous 50.2
Canada (9:30 am)
United States Markit 52.8 street 51.7 and previous 52.4
United States ISM (10:00 am) street 51.5 and previous 51.7
Mexico (10:30 am)
Australia retail sales were flat over month, a 0.4% increase had been expected.
Australia inventories rose by 1.1% in Q3, well above the 0.4% street estimate.
US construction spending is due at 10:00 am ET.
Australia’s interest rate decision is due at 10:30 pm ET, a 25 basis point cut to 3.00% is widely expected.
Canada’s interest rate decision is due at 9:00 am ET Tuesday. No changes are expected.
Saputo (SAP CA) has agreed to acquire Morningstar foods from Dean Foods (DF) for $1.45 billion.
North American indices
The Dow Industrials (US30 CFD) continues to trade above 13,000 support and has been advancing on 13,100 with next resistance after that near 13,300.
The S&P 500 (SPX500 CFD) has broken out over 1,420 to confirm the start of a new upswing with next resistance on trend near 1,435.
The S&P/TSX 60 (Toronto60 CFD) is sitting on 700 but could take a run at 714 on a breakout of its current 698-704 channel with global indices rallying today.
Copper continues to rally, confirming its breakout trading above $3.60 today. RSI suggests there’s still room for further gains with next resistance in the $3.70 to $3.75 area.
US crude is breaking out today with the price driving through $89.00, completing a base while RSI breaking above 50 indicates growing upward momentum. Initial resistance may appear near $90.00 although a measured move suggests that prior highs near $94.00 could be tested over time.
UK crude is sitting on $112.00 where a breakout would complete a symmetrical triangle. Next resistance appears near $113.80 then $116.00 with support in place near $110.00.
Gasoline is bumping up against $2.80 again where a breakout would complete an ascending triangle base with next resistance near a measured $3.10.
Natural Gas is stabilizing near $3.50 which is also near the centre of its rising channel which is currently between $3.15 and $3.85.
Corn keeps rebounding within its $7.10 to $7.80 channel. Trading near $7.60 today having bounced off of $7.50, initial resistance appears near $7.62.
Soybeans have broken through a downtrend resistance line today, indicating growing support. A break of the RSI through 50 or the price through $14.65 would confirm the start of a new recovery trend with next resistance near $15.00 and $15.30.
Wheat is trading between $8.45 and $8.70 within a broader $8.30-$9.10 trading channel.
Sugar is back above 19.00 as it continues to form an ascending triangle base below 19.40 with next resistance on a breakout near 20.30 then 21.00.
FX this morning
Gold continues to consolidate following recent losses, trading above $1,710 support with resistance near $1,720 and $1,740.
Silver continues to hold trend support near $33.50 as it forms a bullish ascending triangle patter below $35.00.
USDCAD remains below $0.9940 confirming last week’s trend line break, but needs to drop through $0.9900 to confirm the start of a new downswing. RSI stalling near 50 suggests downward momentum may be building.
EURUSD continues to climb, trading above $1.3050 with support moving up toward $1.3030. An emerging RSI divergence, however, suggests upward momentum may be slowing and the pair could struggle with key channel resistance near $1.3150.
GBPUSD is breaking out today, clearing $1.6060 which may become new support. Next resistance levels appear near $1.6150 then $1.6200 then $1.6280.
USDJPY continues to bounce around in the 81.70 to 82.80 range.
AUDUSD bounced off of $1.0400 and continues to face resistance near $1.0485. Aussie could be choppy though the day ahead of tonight’s RBA decision. With a cut seemingly already priced in, it could rebound if the RBA stays the course.