ISM Back In Black
Manufacturing PMIs in Germany, France and Italy improved slightly in September, though they continued to be in the contraction zone. The PMIs were quite soft in the Nordic region, with the Swedish headline number dropping to 44.7 and the Norwegian print to 48.9. EURSEK gained more than five big figures on Monday reaching close to the 8.50 level. Spanish Economy Minister Guindos commented that Spain is “analysing ECB aid proposal” while Reuters quoted an EU official saying “Spain is ready to request a EU bailout as early as next weekend but Germany signaled that it should hold”. We note that the Eurogroup meeting on October 8 could be the likely time when Spain could move in this regard and expectations of the ECB activating the OMT programme should support EUR in the near-term. Weak UK data put downward pressure on GBP. Manufacturing PMI fell to 48.4 against a consensus estimate of 49.0. August mortgage approvals were below consensus at 47.7k (consensus: 49.2k) and net mortgage lending fell -GBP 0.3 bn, the largest monthly decline since December 2010. The impact of QE on the monetary aggregates did show up in the M4 data however, with M4 ex. OFC, increasing by 4.1% y/y – the highest since Q1 2009. Risk assets were supported during the New York session by the unexpectedly strong US ISM data which showed that manufacturing expanded in September after remaining in contraction since May. The factory index rose to 51.6 in September from 49.6 in August. Details were also encouraging with new orders up to 52.3 from 47.1, employment up to 54.7 from 51.6 and new export orders edging up to 48.5 from 47.0. Fed Chairman Bernanke said he doesn’t expect economy to be weak through 2015 but expects the Fed to continue a highly accommodative monetary policy for a “considerable time” after the economy strengthens. Chicago Fed President Evans, a FOMC voter in 2013, noted that he is looking for 200k per month increase in payrolls for the next six months and added that he recommends continuing the USD85 bn per month of asset purchases into 2013, after the Twist programme ends in 2012. Ahead today, the RBA’s rate decision is due. The decision is a close call and we are in the minority expecting a 25bp cut. We believe the more dovish RBA commentary of late – amid the persistently high AUD, but lower commodity prices and slower global growth – increases the chance of a near-term cut.
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UBS Investment Bank