China Stats Weigh Early as Focus Shifts to mid-Terms and the USD

Earlier in the Day:

Economic data released through the Asian session was on the lighter side this morning, with key stats limited to China’s October service sector PMI number, which has grown in significance as the Chinese government continues to drive the transition away from manufacturing.

Outside of the stats, the Bank of Japan was also in focus, with September’s monetary policy meeting minutes and BoJ Governor Kuroda speaking early in the day. While the BoJ monetary policy meeting minutes from the September meeting provided little for the markets to consider, with last week’s policy decision and statements being more current, the early Kuroda speech continued to support the BoJ’s accommodative stance on policy, with risks to the Japanese economy stemming from uncertainty abroad on the rise.

The Japanese Yen moved from ¥113.145 to ¥113.197, against the U.S Dollar, through the early morning and Kuroda speech, before rising to ¥113.13 at the time of writing, a gain of 0.06% for the session.

Out of China, the Caixin services PMI came in at a 13-month low 50.8, coming up well short of a forecasted 52.9 and September’s 53.1, adding more concerns over the effects of the ongoing trade war on the Chinese economy and beyond. The slide in the service sector PMI took the composite PMI to a 28-month low 50.5.

According to the latest survey:

• Softer services activity coincided with the first stagnation of new business in almost 10-years, with firms noting subdued demand going into the 4^th
• New orders for the composite PMI (both manufacturing and services) was at its weakest in 32-months.
• Staffing levels increased in the services sector in spite of weak new business, with firms looking to boost operational capacity.
• Unfinished business fell for a 2^nd consecutive month.
• Operating expenses were on the rise through the month, albeit at a slower pace than in September, the uptick attributed to higher fuel costs and rising staffing costs, with prices charged also rising in October.
• Optimism eased through the month, with concerns over the U.S – China trade war weighing.

The Aussie Dollar moved from $0.71873 to $0.71904 upon release of the figures, before easing to $0.7188 at the time of writing, down 0.07% for the session, with hopes of a near-term trade agreement between the U.S and China easing following Kudlow’s downplay of a quick deal at the end of last week.

Elsewhere, the Kiwi Dollar saw heavy losses through the early part of the day, down 0.3% to $0.6641, the slide coming off the back of last week’s heft 2.45% rally that came off the back of improved sentiment towards an end to the ongoing trade war.

The Day Ahead:

For the EUR, economic data scheduled for release is limited to unemployment change numbers out of Spain that are unlikely to have a material impact on the EUR, with focus in the early part of the week being on the mid-term elections in the U.S and of greater significance to the EUR, political and economic uncertainty, 3^rd quarter growth having disappointed and with the Italian government looking to thrash it out in Brussels as the economy grounds to a halt.

At the time of writing, the EUR was down 0.01% to $1.1387, with geo-political risk the key driver through the day.

For the Pound, economic data scheduled for release is limited to October’s service sector PMI that will need to impress following a weaker manufacturing PMI released last week, though it’s ultimately going to boil down to Brexit chatter through the day.

Expectations are that a favourable Brexit deal will deliver a bounce back in the UK economy and also a more hawkish BoE, which would certainly see a spike in the Pound, though there’s still a long way to go to a suggested deal by 21^st November that will continue to see the Pound swing.

At the time of writing, the Pound was up 0.16% to $1.2991, with Brexit chatter the key driver through the day.

Across the Pond, economic data due out is limited to the market’s preferred ISM non-manufacturing PMI figures for October that will provide some further guidance on the direction of the U.S economy going into the 4^th quarter. While there will be a Dollar response to the numbers, we can expect focus to primarily be on the U.S mid-terms, with focus also likely to be on any updates on trade talks between the U.S and China and sentiment towards the FED’s policy decision at the end of the week and outlook on rates for December and the year ahead.

Talk of the Democrats taking both houses would be considered Dollar negative, Trump’s fiscal policy plans likely to come to a grinding halt, with an easing in trade war jitters also Dollar negative. Of interest will be the FED’s view on the mid-term results at the end of the week, with a tying of Trump’s hands likely to be a hot topic of discussion amongst FOMC members.

At the time of writing, the Dollar Spot Index was down 0.06% to 96.483, with today’s stats and the Oval Office the key drivers through the day.

For the Loonie, there are no material stats scheduled for release through the day, leaving the Loonie in the hands of market risk sentiment and the direction in oil prices, which have been on the back foot as the U.S administration rolls out waivers to the latest sanctions on Iran’s crude oil.

The Loonie was up 0.05% to C$1.3103 against the U.S Dollar at the time of writing.