Yesterday, the single currency erased earlier session gains on disappointing PMI data from the Eurozone and especially Germany. The final reading of the Markit/BME composite PMI for September printed slightly below the 54.3 figure expected by the market, coming in at 54.1. While in the Eurozone, the final composite PMI for September printed at 53.6, versus an expected 53.9 and previous reading. Only the French PMI managed to grow in September, the gauge tipped to 51.9 from 51.4. EUR/USD quickly returned below the 1.12 threshold as a result of the fading euro appetite. In the medium-term, the pair continues to trade range-bound between 1.11 and 1.1320 and is currently sitting on its 200dma, at around 1.1160.
In the UK, data continues to disappoint with the Markit/CIPS composite PMI printing at 53.3, below an anticipated 54.3 and upwardly revised figure of 55.2 in August. We expect the pound sterling to remain under selling pressure as the economy goes through a soft patch. After breaking the resistance implied by the low from September 4th at 1.5165, the pair is now heading toward the next one standing at 1.5089 (low from May 5th).
***Yann Quelenn, Market Analyst: “Times are tough, even in Switzerland. Almost nine months on it is clear that the Swiss economy is still digesting the SNB decision to abandon the EUR floor. Recent data has been coming in mixed; for example August retail sales contracted and purchasing manager’s index surprised to the downside in September. Furthermore, the CHF is still seen as overvalued.
However, we think it’s likely for the EURCHF pair to break the 1.1000 level again. The market is driven by volatility, as global uncertainties remain strong and risk-off sentiment is only set to grow. It’s our view that the US Federal Reserve is sending a strongly negative signal by delaying its rate hike. U.S. recovery looks unsustainable and traders are starting to price the end of the zero interest-rate policy by 2017. Commodities and safe-haven countries may be targeted in the near future.
Even considering the deceleration of the Swiss economy, it still remains a port in the storm. We don’t anticipate that the weakening of the Swiss Franc, which we have seen over the past 3 months, will already have an impact on the inflation data due out later today. The Swissie remains strong as does demand for imported goods. Of course, what we are now wondering is what if the ECB’s quantitative easing program does not deliver the expected results?” ***
As was widely expected, the RBA held rates steady at 2.00%. The tone of the basically unchanged statement was slightly less dovish then the market had anticipated. Despite expectations, there was no downgrade in the global growth assessment or additional discussion on uncertainty in China. The RBA maintains the general view that "the global economy is expanding at a moderate pace, with some further softening in conditions in China and East Asia of late, but stronger US growth". In regards to FX, the RBA maintained that the AUD, “is adjusting to the significant declines in key commodity prices.” On the data front, Australia’s August trade deficit widened to AU$3095mn, worse than the market consensus of AU$2400mn and revised deficit of AU$2792mn in July. The soft data highlights that regional growth is losing momentum, which will potentially have a deeper impact on Australia than the RBA recognizes. AUD rallied on the less pessimistic RBA results, improvement risk sentiment and TPP deal. AUD/USD jumped to 0.7134 from 0.7085 as bullish sentiment should push current rebound to challenge 55dma at 0.7186.
In the stock market, most Asian regional markets emulate Wall Street and European markets. In Japan, the Nikkei rose 1% to 18,186, while the Topix index climbed 0.81%. Mainland Chinese markets are still closed due to holiday, while in Hong Kong, the Hang Seng is the only loser, dropping -0.21%. In Australia, the S&P/ASX edged up 0.33%, while in New Zealand, the S&P/NZX climbed 0.67%. In Europe, equities are taking a breather after the quick rally of the previous days. Futures are mixed this morning: the DAX edges up 0.10%, the Footsie 0.18% and the SMI 0.11%. The French CAC 40 fell -0.10%. The Euro Stoxx 50 is up 0.13%.
Today traders will be watching Halifax house prices from the UK; Swiss CPI; Mario Draghi’s speech in Frankfurt and retail PMI from the Eurozone; Fed’s Williams’ speech in San Francisco and the trade balance from the US.