October’s Global Flash PMIs: FX Volatility Day

Given the situation in global supply chains, PMI data has returned to focus.

Businesses are increasingly reporting difficulties in obtaining supplies. This translates into lower profits and slower economic growth. Purchasing managers are likely to be at the forefront of the impact. Therefore, investors would be very interested in their perception of the business outlook for the next six months.

Tomorrow’s data is preliminary, and subject to adjustment when the final figures come out two weeks from now. However, the market tends to move the most on the flash data because the final is often not far from the preliminary figure.

We could see some strong volatility in most currency pairs since there are so many countries reporting Flash PMIs over the next 24 hours.

What to look out for
First up is Australia, which could provide the first dose of optimism. Manufacturing PMI could show a slight decline to 56.0 from 56.6 in September.

Most of the focus though, is on the Services component, as that’s the most affected by the lockdowns. There, PMI may expand to 48.0 from 45.5. This is a substantial improvement, but still in contraction. We’d have to see a number above 50 before investors are likely to have enough confidence to push the Aussie higher.

Data from the UK, however, is not immune from a drop in optimism as the new normal reasserts itself. Analysts expect Services PMI to have a retracement to 54.5 from 55.4, while Manufacturing PMI could have a significant move to 55.8 from 57.1.

Both measures are of course above 50 and in expansion territory. Nonetheless, the drop going into the key shopping season might be of concern for investors.

The final PMI release of the month could bring a little bit of optimism from the US. Specifically, there is an expectation for Services PMI to move up marginally to 55.1 from 54.1 prior. The fact that there is unequal recovery across the US because of the varying levels of covid restrictions still in place likely distorts the figure. Manufacturing PMI might decline to 54 from 55. As long as it remains above 50, it’s unlikely to affect the dollar as much.

European PMIs
Moving on to the European PMI releases, the first to report is France. The data often sets the tone for the euro since it’s the first of the big economies to report.

The focus is returning back to the manufacturing sector since the country has been out of lockdown for quite some time. However, economists anticipate that both sectors may fall back in their optimism. Projections are for French Services PMI to fall to 55.5 from 56.2, while Manufacturing PMI drops to 54 from 55.

There is a possibility for German PMIs to have a similar pattern as France – still in growth, but with waning optimism. The trend could weigh on risk sentiment, particularly going into the weekend.

Analysts predict German Services PMI to have the largest decline of the reporting countries, particularly at 55.0, compared to 56.2 in September. Manufacturing PMI could also fall to 56.5 from 58.4 prior.

Lastly, the summary of eurozone PMIs may have a slight decline, with Services’ projection to stay firmly in growth at 55.5 from 56.4. Manufacturing PMI might drop to 57.0 from 58.6.

A modest decline in optimism across Europe wouldn’t hurt growth outlooks too much. This is because a certain pullback from recovery optimism is predictable as the economy returns to its normal growth patterns.