Global PMI Data Released Today With China Kicking Off Deep In Contraction

The Chinese yuan is holding flat at 6.4937 against the weak US dollar. Moves in the renminbi are limited after the release of lackluster China private and official manufacturing PMI data.In economic news, data from the National Bureau of Statistics showed that China’s official manufacturing Purchasing Managers’ Index or PMI came in at 49.7 in December, slightly better than 49.6 reported in November. The non-manufacturing PMI rose to 54.4, from 53.6 in November. Against the greenback, the yuan rose to a 2-day high of 6.4895 at the end of last week. If the yuan extends its uptrend, it is likely to find resistance around the 6.47 area.

On Monday the private Caixin report showed that China’s factory activity shrank for a 10th straight month in December as surveys across Asia showed industry struggling with slack demand even as the policy cupboard is looking increasingly bare of fresh stimulus.

Uncertainty over the economic outlook was exacerbated by a flare up in tensions between Saudi Arabia and Iran, that has sent investors scurrying from stocks to safe havens such as the Japanese yen. The dollar fell to a 10-week low against the yen as tensions in the Middle East and soft Chinese data added bids to the safe-haven Japanese currency in the first trading session of 2016.

The greenback was down 0.4 per cent at 119.77 yen after hitting 119.685, its lowest level since October 22. The greenback also eased against the Swiss franc, another safe-haven. The Swissie gained 0.3 per cent to 0.9997 franc per dollar, moving away from a 3-1/2-week low of 1.0030 hit the previous session.

Investor risk appetite took a knock at the start of the new year after Saudi Arabia yesterday severed ties with Iran and data showed China’s factory activity shrank for the tenth straight month in December, hitting shares across Asia.

The Aussie often used as a proxy for China-related trades, was down 0.9 per cent at 0.7231 in the wake of this morning’s poor Chinese factory activity data. The Aussie lost roughly 12 per cent in 2015 on factors including lower commodity prices, rate cuts by the Reserve Bank of Australia and prospects of slower growth in China. Local data on Monday showed that the manufacturing sector in Australia continued to expand in December, albeit at a slower pace, the latest survey from the Australian Industry Group said on Monday with a Performance of Manufacturing Index score of 51.9.

New Zealand markets are closed for New Years while the kiwi dipped 77 points to 0.6754 on weak Chinese data, but dairy prices showed signs of bottoming out last year and analysts reckon this could give it a leg up over the Aussie in 2016.

The economics calendar heats up this week with manufacturing, service and employment data from around the world culminating with Friday’s nonfarm payroll report. The U.S. version of the PMI is due later Monday and is expected to show another month of contraction at 49.0.Yet the service sector has been faring much better and its labor-intensive activity has been the driving force behind a string of strong payrolls reports. The December jobs report is on Friday and any repeat of November’s rousing numbers could challenge the market’s cozy assumptions that further interest rate rises will be slow in coming and limited in scope.