Markets Respond to the Trade War Truce, the Greenback the Early Victim

Earlier in the Day:

It was a busy start to December, with key stats scheduled for release including manufacturing, building approval and company gross operating profit numbers out of Australia, capital spending figures out of Japan and manufacturing PMI numbers out of China.

For the Japanese Yen, capital spending rose by 4.5% in the 3^rd quarter year-on-year, coming up well short of a forecasted 8.6% rose, following a 12.8% rise in the 2^nd quarter, according to figures released by the Ministry of Finance.

The Japanese Yen moved from ¥113.737 to ¥113.730, against the U.S Dollar, upon release of the figures, before rising to ¥113.57 at the time of writing, the Yen flat for the session.

For the Aussie Dollar,

The AIG Manufacturing Index tumbled from 58.3 to 51.3 in November, the lowest result since October 2017. According to the latest results:

• 5 of the 8 sectors expanded in November, while 3 were mostly stable, with the fastest pace of growth being reported in printing & reporting media (PMI: 67.6); food & beverages (57.9) and non-metallic minerals (74.9).
• The input price index rose by 2.2 points to 75.0, reflecting high input costs for gas and electricity.
• The F&B sector reported higher prices for raw agricultural inputs and some quality issues attributed to the drought.
• The selling price index fell by 6.7 to 50.4, with the average wage index sliding by 8.2 points to 58.8, now sitting below its 12-month average 61.5.
• Five of the seven activity indexes expanded in November and employment was steady, while the new orders index fell into contraction for the first time since Sep-16.

Building approvals fell by 1.5% month-on-month in October, following a 5.5% jump in September, which was worse than a forecasted 1.4% fall.

According to figures released by the ABS, the decline was attributed to a 4.8% fall in private sector dwelling excluding houses approvals, with private house approvals rising by 2.7%.

Company gross operating profits rose by 1.9% in the 3^rd quarter quarter-on-quarter, coming up short of a forecasted 2.9% rise, following on from a 2.4% rise in the 2^nd quarter.

According to the ABS:

• Mining gross operating profits rose by 3.4%, with electricity, gas, water and waste services and construction seeing a 7% and 9.7% surge respectively, with arts and recreation services seeing a 9.6% jump. Accommodation and food services saw the largest jump, rising by 13.4%.
• In contrast and dragging on the headline number, the largest falls in operating profits were seen in other services, which fell by 8%, manufacturing by 5.1% slide, retail trade by 2%

The Aussie Dollar moved from $0.73570 to $0.73498 upon release of the figures that came out ahead of China’s private sector PMI numbers.

Out of China, the November Caixin manufacturing PMI stood at 50.2, coming in above a forecasted and October 50.1. According to the latest survey:

• Total new orders saw a marginal improvement in November, though weak external demand continued to weigh on overall sales, with export orders declining further to mark an 8^th consecutive month of decline.
• Production levels were unchanged for a 2^nd month in a row, with relatively subdued sales and stricter environmental policies being attributed.
• Payrolls continued to fall, the rate of decline similar to October.

The Aussie Dollar moved from $0.73523 to $0.73513 upon release of the figures, before rising to $0.7358 at the time of writing, a gain of 0.71% for the session, driven by the U.S – China trade war 90 day truce.

The Day Ahead:

For the EUR, key stats scheduled for release through the day include finalized manufacturing PMI numbers out of France, Germany and the Eurozone, together with Spain and Italy’s numbers, concerns over Italy’s economic outlook expected to weigh should there be a further slowdown in manufacturing activity.

Outside the numbers, we can expect the markets to continue responding to the trade war truce between the U.S and China along with Brexit chatter, with the Italian coalition government’s budget plans also there to consider.

A possible Trump shift in attention towards trade terms with the EU is a risk to the EUR on the day.

At the time of writing, the EUR was up 0.26% to $1.1346, with today’s stats and geo-politics the key drivers through the day.

For the Pound, November’s manufacturing PMI number will be in focus, the Pound in dire need of a boost as Brexit troubles continue to weigh, with chatter from parliament ultimately the key driver this week, the Brexit deal debate kicking off tomorrow ahead of the 11^th December vote.

At the time of writing, the Pound was up 0.20% at $1.2774, with Brexit news the key driver through the day.

Across the Pond, economic data scheduled for release includes November’s finalised Markit manufacturing PMI and the market’s preferred ISM manufacturing PMI number, which will have a greater influence on the day.

Outside of the stats, Oval Office chatter will influence following a trade war truce with China, with a scheduled FOMC member Kaplan speech also there to consider.

At the time of writing, the Dollar Spot Index was down 0.27 to 97.013, risk aversion and demand for the Dollar easing through the early part of the day.

For the Loonie, there are no material stats scheduled for release, leaving the Loonie in the hands of market sentiment towards crude oil prices ahead of this week’s OPEC meeting and Wednesday’s BoC interest rate decision.

The Loonie was up 0.53% to C$1.3221 against the U.S Dollar at the time of writing.