- Stabilisation of the Chinese manufacturing sector suggests that more stimulus is not required for the moment
- AUD/USD is still trading with a negative bias as market participants await Friday’s NFP report from the US
- On the downside, a support can be found at around 0.75 while on the upside a resistance can be found at 0.7582
- The next Russian Central Bank meeting will be held the 16th of September and we are already expecting a rate cut towards 10% as the Russian economy continues to improve
- Interest rates in Russia are going to attract many more investors and the rebound in oil prices has helped the country to enter a new positive cycle
AUD crosses rallied strongly in overnight trading as China’s manufacturing PMI rose to 50.4 in August from 49.9 in the previous month. The stabilisation of the Chinese manufacturing sector suggests that more stimulus is not required for the moment, which will allow the government to focus on eliminating overcapacity and containing financial risk. The non-manufacturing PMI eased slightly to 53.5 from 53.9. AUD/USD surged as high as 0.7548 in Sydney before easing to 0.7535 after data showed private capital expenditure fell another 5.4% in the second quarter (compared to -4% expected and -5.4% in the first quarter). However, CAPEX on equipment, plant and machinery increased by 2.8%q/q. All in all, it seems that the weak CAPEX figures will weigh on GDP growth for the second quarter. AUD/USD is still trading with a negative bias as market participants await Friday’s NFP report from the US. On the downside, a support can be found at around 0.75 (psychological level), while on the upside a resistance can be found at 0.7582 (high from August 29th).
In South Korea, August’s consumer price index came in well below market expectations as it contracted by 0.1%m/m versus an expected increase of 0.2% and a previous reading of 0.1%. On a year-over-year basis, headline CPI came in at 0.4% versus 0.7% median forecast. Separately, exports rebounded in August, rising by 2.6%y/y (versus -0.5% median forecast), while imports edged up 0.1%y/y (versus -2.2% expected). However, this positive surprise is mainly due to the two extra working days rather than an actual pickup in trading activity. South Korea is greatly exposed to the health of the Chinese economy and the latest data from the latter does not suggest a strong rebound in imports from South Korea. USD/KRW rose 0.60% to 1,122.05 during the Asian session.
In the equity market, Asian equity returns were mixed on Thursday. Japan’s Nikkei and Topix indices were up 0.23% and 0.59% respectively, while in China the Shanghai and Shenzhen Composites were down 0.63% and 0.64% respectively. In Hong Kong, the Hang Seng was up 0.61% and in Taiwan the Taiex fell 0.75%. In Europe, futures are trading higher across the board with the Footsie up 0.40% and the SMI rising 0.40%.
Yann Quelenn, market analyst: “Russia’s recovery is still fragile: The Russian economy continues to improve. While the financial markets had previously priced in a severe economic correction, it seems that a year later, momentum is positive and growing. Indeed, Russian PMI increased for August to 50.8, exceeding expectations. At the same time the Ruble is consolidating against the dollar. The currency only stopped appreciating due to renewed market hopes of a Fed rate hike before year-end.
At the September Russian Central Bank meeting, we will be expecting a rate cut of around 10%. While it is true that Russian GDP has declined 0.6% y/y, this data is still accounting for last year’s downturn. We also take the same view concerning retail sales, which although negative on a yearly basis, are slightly improved month over month.
There are two main reasons why Russia is experiencing this upturn. Firstly, its interest rates are increasingly attracting investors. Secondly, the rebound in oil prices has helped the country to enter a new positive cycle, however, this may be short-lived as we may soon see prices lower again due to oversupply from OPEC members. On top of this, a new dynamic seems to be emerging: the emancipation of oil, as is currently being discussed in Norway as part of their strategy to ban fossil fuel cars by 2025. This is just the start of a long-term trend but is symbolic of where we see oil prices in the medium-term: very low.”---
Today traders will be watching manufacturing PMI from Norway, Turkey, Spain, Italy, France, Germany, UK, Denmark and the euro zone; initial jobless claims, manufacturing PMI, ISM and construction spending from the US.