China PMIs Give Riskier Assets a Boost as Focus Shifts to the EUR and USD

Economic data out of China provides early support, as the markets look ahead Eurozone and U.S data later in the day. Geopolitics will also be in focus…
Bob Mason
worker with fork pallet truck

Earlier in the Day:

It was a busy start to the week on the economic calendar through the Asian session this morning.

The Japanese Yen and Aussie Dollar were in action in the early part of the day.

Australian manufacturing, building approvals and company gross operating profit figures along with manufacturing PMI numbers out of China provided direction early in the day.

Of less influence was 3rd quarter capital spending figures out of Japan.

On the geopolitical front, the markets continued to wait out for China’s reaction to Trump’s signing of the HK Bill.

For the Japanese Yen

Capital spending surged by 7.1% in the 3rd quarter, year-on-year, following a 1.9% increase in the 2nd quarter. In the 1st quarter, spending had risen by 6.1%.

The Japanese Yen moved from ¥109.562 to ¥109.527 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.19% to ¥109.7 against the U.S Dollar.

For the Aussie Dollar

The AIG Manufacturing Index fell from 51.6 to 48.1 in November. Following on from a slide from 54.7 back in October, the index fell to its lowest level since August 2016.

According to the latest AIG Report,

  • A faster rate of contraction in new orders weighed and points to a weak Christmas period ahead.
  • It was not industry-wide, however, with firms in the large food and beverage sector reporting buoyant conditions.

Building Approvals slid by 8.1% in October, partially reversing a 7.6% jump in September. Economists had forecast a 0.4% increase.

According to the ABS,

  • The slide was attributed to an 11.3% tumble in the approval of private dwellings excluding houses.
  • Approvals for private sector houses fell by 7%.

Company gross operating profits fell by 0.8% in the 3rd quarter, following a 4.5% rise in the 2nd quarter. Economists had forecast a 1.5% increase.

According to the ABS,

  • Weighing on the headline number were falls in company profits in the following sectors:
    • Arts and recreation services (-16.6%).
    • Financial and Insurance Services (-28.0%).
    • Mining (-2.1%).
    • Other services (-4.4%).
    • Rental hiring and real estate services (-11.2%).
    • Transport, postal and warehousing (-6.6%).
  • While company profits declined in the quarter, wages (+1.0%) were on the rise in the quarter.

The Aussie Dollar moved from $0.67674 to $0.6750 upon release of the figures. At the time of writing, the Aussie Dollar up by 0.15% to $0.6773.

Out of China

The Caixin Manufacturing PMI rose from 51.7 to 51.8 in November. Economists had forecast a fall to 51.4. According to the Markit Survey,

  • New business rose strongly, supporting another solid rise in production.
  • Notably, new export orders saw a 2nd consecutively monthly rise for 1st time in over 18-months.
  • Staffing levels held steady following 7 consecutive monthly declines, while capacity pressures led to a pickup in backlogs.
  • In spite of the pickup in new orders and output, positive sentiment towards the 12-month outlook fell to a 5-month low.
  • The fall in optimism was attributed to stricter environmental policies and continued market uncertainty.

The Aussie Dollar moved from $0.67717 to $0.67745 upon release of the figures.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.31% to $0.6442.

The Day Ahead:

For the EUR

It’s a busy day ahead on the economic calendar. Key stats include November manufacturing PMI numbers out of Italy and Spain and finalized PMIs out of France, Germany, and the Eurozone.

Barring deviation from prelim figures, Italy and the Eurozone’s figures will have the greatest influence on the EUR.

Expect the devil to be in the details, with employment conditions and new orders likely to be the main areas of focus.

On the geopolitical front, any updates from Beijing and Washington on trade will also influence.

At the time of writing, the EUR was flat at $1.1018.

For the Pound

It’s a relatively busy day on the data front. Finalized November manufacturing PMI numbers are due out later this morning.

Barring a material revision, however, the Pound will likely brush aside today’s numbers, with the focus being on the UK General Election.

There are just 10 days until Election Day and Boris Johnson’s lead has narrowed sharply from 17 points to just 9 according to the latest YouGov opinion poll tracker.

Sunday’s ITV Election Debate will likely have some influence in the early part of the day.

At the time of writing, the Pound was down by 0.09% to $1.2914.

Across the Pond

It’s a relatively busy day on the economic calendar, with manufacturing PMI figures due out for November.

Barring deviation from the Markit’s prelim numbers, the focus will be on the market’s preferred ISM Manufacturing PMI.

Outside of the numbers, the markets will be looking for any retaliation from China on Trump’s signing of the HK Bills last week. Or there could be further progress towards a phase 1 agreement…

At the time of writing, the Dollar Spot Index was up 0.04% at 98.312.

For the Loonie

It’s a quiet start to the week on the economic calendar, with no material stats due out of Canada to provide direction.

With the Bank of Canada in action on Wednesday, PMI numbers from China, the Eurozone, and the U.S could influence crude oil prices and the Loonie throughout the day.

Last week’s GDP figures suggest that the BoC may need to take a more cautious stance, which should limit any major upside in the early part of the week.

The Loonie was up by 0.01% to C$1.3281, against the U.S Dollar, at the time of writing.

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