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China Data Provides Support as Focus Shifts to the EUR and GBP

Bob Mason

Earlier in the Day:

The economic calendar was on the busier side through the Asian session this morning. Key stats included August manufacturing numbers out of China, Australia, and Japan. 2nd quarter capital spending out of Japan and 2nd quarter company gross operating profit figures out of Australia also provided direction.

Economic data from China over the weekend had weighed on risk appetite ahead of the more influential Caixin PMI.

For the Japanese Yen

Capital Spending rose by 1.9% in the 2nd quarter, following on from a 6.1% rise in the 1st quarter.

The Japanese Yen moved from ¥106.114 to ¥106.163 upon release of the figures, which preceded August’s manufacturing PMI.

August’s Manufacturing PMI came in at 49.3, which was worse than a prelim and forecast 49.5 and July 49.4. According to the Markit PMI Survey,

  • The deterioration in the manufacturing sector was among the strongest seen over the last 3-years.
  • New business declined at the fastest pace in 5-months, with businesses highlighting China as a particular source of weakness.
  • Employment was the only positive in August, with firms continuing to hire in spite of softer new orders.

The Japanese Yen moved from ¥106.196 to ¥106.124 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.09% to ¥106.18 against the U.S Dollar.

For the Aussie Dollar

The AIG Manufacturing Index rose from 51.3 to 53.1 in August. According to the latest survey,

  • The increase in August came off the back of rising production levels and a pickup in exports.
  • Looking at the sub-indexes, the exports sub-index rose by 1.1 points to 55.7, with the production sub-index rising by 4.9 points to 43.2.
  • News orders saw a minor increase, rising by 0.3 points to 53.3.
  • While average wages increased by 3.4 points to 60.3, the employment sub-index fell by 1.8 points to 51.4.
  • By sector, machinery & equipment was the only sector to record a pick up in activity, with the PMI rising by 1.6 points to 52.5. The 12-month average stood at 49.9.
  • Food & beverages recorded the largest monthly decline, with a 1.7 point fall to 55.8.

The Aussie Dollar moved from $0.67262 to $0.67287 upon release of the figures, which preceded operating profit figures and China’s manufacturing PMI.

Company Gross Operating Profits jumped by 4.5%, quarter-on-quarter, in the 2nd quarter, following an upwardly revised 2.6% increase in the 1st quarter. Economists had forecast a 2.0% increase. According to the ABS, a 10.9% surge in mining sector company profits supported the uptick.

The Aussie Dollar moved from $0.67268 to $0.67257 upon release of the figures that preceded China’s Manufacturing PMI.

Out of China

The Caixin Manufacturing PMI rose from 49.9 to 50.4 in August, coming in ahead of a forecasted 49.8. According to the Markit PMI survey,

  • Firms registered the quickest increase in production in 5-months.
  • New orders held steady, whilst new export orders saw a faster pace of decline.
  • Falling prices for raw materials led to a renewed fall in input prices, with the rate of decline the joint-quickest since Jan-16.
  • Output prices fell at the steepest pace since Dec-16 as a result of lower input prices and efforts to stimulate sales.
  • In spite of the pickup in production, sentiment towards the next 12-months fell to among the lowest levels in the series history.
  • Concerns over the U.S – China trade war and evidence of weaker global economic conditions weighed.

The Aussie Dollar moved from $0.67257 to $0.67348 upon release of the survey. At the time of writing, the Aussie Dollar was down by 0.04% to $0.6729.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.38% to $0.6304. The risk-off sentiment from the start of the session left the Kiwi deep in the red early on but should find support from China’s PMI.

The Day Ahead:

For the EUR

It’s a busy day ahead on the economic calendar. Key stats through the day include Manufacturing PMIs out of Spain and Italy. Finalized August manufacturing PMIs are also due out of France, Germany, and the Eurozone.

Barring any deviation to Germany’s PMI, We would expect Italy and the Eurozone’s Manufacturing PMIs to have the greatest influence on the day.

Outside of the numbers, Brexit and trade war chatter and updates from Italy will also provide direction.

At the time of writing, the EUR was up by 0.08% to $1.0991.

For the Pound

It’s a relatively quiet day ahead on the data front. Economic data is limited to August’s Manufacturing PMI.

While we expect the numbers to influence the Pound, the market focus will remain on Brexit chatter throughout the day.

There’s one day remaining before MPs return from the summer recess and the political climate has certainly changed since the start of the summer.

Johnson has obtained agreement to suspend Parliament and Pro-Remainers are, not only looking to block it but also oust the British PM. It remains to be seen whether either are achievable…

At the time of writing, the Pound was up by 0.02% to $1.2158.

Across the Pond

It’s a quiet day on the economic calendar, with the U.S markets closed for the day.

A lack of stats will leave the Dollar in the hands of market sentiment towards trade and monetary policy on the day.

At the time of writing, the Dollar Spot Index was down by 0.10% to 98.821.

For the Loonie

It’s also a quiet day ahead on the economic calendar, with Canada also on holiday.

Market risk sentiment, this morning’s China manufacturing PMI and influence on crude oil prices will provide the Loonie with direction.

The Loonie was down by 0.04% at C$1.3316, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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