China PMI Dents Aussie
The Australian dollar fell sharply overnight after the official China PMI for May came in well below expectations at a mere 50.4 (cons. 52.0). The speed of decline since April’s reading of 53.3 was striking, and it didn’t help matters that a private sector PMI survey published shortly afterwards was revised down from the earlier flash estimate. Clearly not all the macro risks are confined to Europe – a fact confirmed yet again by yesterday’s softer than expected US data: the May ADP private payrolls print came in at 133k; initial claims rose 10k to 383k; and the Chicago PMI fell to 52.7. This does not affect our forecasts for Friday’s key US data, as our US economists still look for an acceleration in overall and private payrolls growth to +175k and +185k, respectively, alongside a drop in the jobless rate to 8.0% and a dip in the manufacturing ISM to 54.0 in May. The latest data prints have done little to assuage concerns that the Eurozone crisis and US ‘fiscal cliff’ are starting to weigh more heavily on US growth, a point underscored today by Cleveland Fed President Pianalto, who said “my current assessment is that the real economy continues to show considerable cyclical weakness”. USDJPY remains heavy, prompting another round of rhetoric from MoF officials overnight – this time sounding slightly more insistent. Finance Minister Azumi said that the latest yen rise has been driven chiefly by speculators and that Japan is ready to take bold action if such yen moves persist. Nakao, Vice Finance Minister for International Affairs, said that although there may be a difference of opinion between Japan, Europe, and the US on FX matters – Japan is still determined to respond when FX moves are excessive. The focus is now on the Irish referendum results expected in the London afternoon, where a “yes” is well priced in.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank