Private Sector PMIs and Trump to Drive the EUR and USD

It’s risk on early, with Eurozone and U.S flash private sector PMI numbers in focus, though expect more from Trump…
Bob Mason
Euro Area Manufacturing Falls Say Markit
Euro Area Manufacturing Falls Say Markit

Earlier in the Day:

It was another quiet day on the data front, with material stats released through the Asian session this morning limited to July’s prelim manufacturing PMI numbers out of Japan.

For the Japanese Yen, the July PMI fell from 53 to a 20-month low 51.6, falling well short of a forecasted rise to 53.2, with the key drivers behind the move being:

  • New business grew at a much weaker pace and was broadly flat, while export demand deteriorated for a 2nd consecutive month, in spite of a weaker Yen, albeit at a slower rate of decline.
  • Input delivery times lengthened to the sharpest in over 7-years, with issued faced on the supply chain side leading to the fastest rate of input price inflation since March 2011.
  • While output price inflation picked up, the rate was far softer than the rate of input price inflation, which is expected to weigh on profit margins.
  • Optimism weakened at the start of the 3rd quarter, the pace of hiring also slowing.

The Japanese Yen moved from ¥111.317 to ¥111.318 upon release of the figures, before rising to ¥111.29 against the Dollar at the time of writing, up 0.05% for the session, as sentiment towards BoJ policy continues to influence.

Elsewhere, the Aussie Dollar and Kiwi Dollar found much needed support following Monday’s reversal through the day, a jump in U.S Treasury yields favouring the U.S Dollar at the start of the week.

At the time of writing, the Aussie Dollar was flat at $0.7381, with the Kiwi Dollar down just 0.06% to $0.6782, the pair finding some support from a pickup in risk appetite through the session, while the bounce in U.S Treasury yields pins back any upside.

In the equity markets, it was risk on with the CSI300 and Hang Seng up 1.71% and 1.50% respectively at the time of writing, while the ASX200 and Nikkei were up 0.55% and 0.59% respectively, the gains in the Nikkei muted by the stronger Yen and the softer manufacturing PMI number released earlier in the session.

The Day Ahead:

For the EUR, following a quiet start to the week, economic data scheduled for release out of the Eurozone this morning includes July’s prelim private sector PMI numbers out of France, Germany and the Eurozone, together with business confidence figures out of France.

Forecasts are for the PMI numbers to be skewed to the negative, French business confidence forecasted to hold steady in July and for Germany’s manufacturing sector to see growth slow marginally. While recent factory order and industrial production figures out of Germany pointed to a recovery, June’s PMI hit an 18-month low, with new order growth seeing the slowest rise in more than 2-years that is likely to weigh.

At the time of writing, the EUR was down 0.05% to $1.1686, with today’s stats in focus ahead of Juncker’s meeting with Trump and Thursday’s ECB policy meeting and the all-important press conference.

For the Pound, economic data scheduled for release through the day is limited to July’s CBI Industrial Trend Orders, with anything in line with or worse than forecasted considered a negative for the Pound. We can expect the Pound to be more sensitive to the stats, following last week’s numbers, with more disappointment likely to see the markets further price out an August rate hike.

At the time of writing, the Pound was down 0.04% to $1.3096, with today’s stats and Brexit in focus through the day, concerns over the prospects of a “No Deal” building as Parliament gets ready for the summer holidays.

Across the Pond, stats out of the U.S this afternoon include prelim July private sector PMI numbers, which are forecasted to be Dollar neutral, placing a greater emphasis on the sub-indexes, wholesale price inflation and new order growth in particular.

While the Markit survey based numbers have less of an influence than the ISM numbers, we can expect some influence, with little else other than Trump for the markets to focus on.

At the time of writing, the Dollar Spot Index was up 0.04% to 94659, with today’s stats and the ever influential Oval Office the key drivers through the day.

For the Loonie, there are no material stats scheduled for release, with sliding crude oil prices and a jump in U.S treasury yields having pinned back the Loonie in spite of a bounce back in Wholesale Sales in May, that comes off the back of the better than expected retail sales and inflation figures released last week.

At the time of writing, the Loonie was down 0.04% to C$1.3176 against the U.S Dollar.

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