PMI Data Mixed In Europe
After a strong Asian session, risk assets pared some of their gains in Europe. Risk opened on a firm note after China’s official manufacturing PMI released over the weekend came in at 53.1 (cons. 50.8), substantially beating consensus opinion. The Australian dollar was the main beneficiary and climbed over 100 pips at the Asia open, although the rally eventually lost some steam after a very weak Australian building approvals report. The weekend PMI was all the more surprising given investors had been mentally prepared for a soft print after the weak private sector flash estimate released over a week ago. Leading indicator data was released elsewhere with a standout number in Switzerland, softer numbers in Sweden and France and a firmer print in Germany. Overall, the data is very region-specific and few wider trends can be extracted, but in most areas, the numbers seem to be gravitating towards the 50 level, with underperformance in the Eurozone. The China PMI is likely to continue to set a positive tone throughout the week, although US data releases such as ISM and non-farm payrolls will also be key. In particular, the data comes at a crucial moment for AUD given the RBA is scheduled to meet on Tuesday. Our Australia economics team expect no change to the cash rate and the latest Chinese numbers support this view – despite a loss of momentum in recent Australian economic data. USDJPY has also started the week on a firmer note as Japan’s new fiscal year gets underway. The prospect of yield-seeking yen-outflows over the weeks ahead should keep the pair on a trajectory towards our 3m target of 85.00. Japan’s Tankan survey was slightly weaker than expected which gave USDJPY a nudge higher by slightly raising the risk of another round of BoJ easing. BoE and ECB policy decisions are due this week and our economists expect no material change in policy settings.
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UBS Investment Bank