Major Overnight Headlines
• UK services PMI at 60.5; Euro Area Composite PMI falls to 51.5 from 51.7 at final pass in August
• Euro Area GDP up 0.3% QoQ in Q2 in gross value added terms, in-line with estimates
• Australian Q2 GDP rises 0.6% QoQ, beating 0.5% expected; Chinese services PMI at 5-month high in August
• Israel says following Syrian developments “closely”, will “act with resolve” if necessary, Bloomberg
For the sake of the forward outlook, we think it’s worth looking at all of the data from EU economies – both this morning and in the recent past – alongside the IMF’s remarks prepared for the G20 summit in St. Petersburg. “Global growth remains subdued”, and “global action is needed to better manage risks”.
Although some economies like the US and the UK are structurally better able to take advantage of event-driven boosts to the financial system and various measures of “confidence”, we still think a lot of what has transpired in the West over the past year has actually been very much “OMT driven”. Mario Draghi bought the Euro Area and the rest of the global economy a tremendous amount of breathing space one year ago this week, and in so doing, created a “reverse ripple effect”. Instead of the net effect of OMT being most potent at the “core” or centre of the problems within the developed financial system (Europe), the net effect of OMT was most potent at the periphery, in economies which are for all practical purposes furthest away from EUR-atrophy. There, banking systems are better able to support the real economy.
If the OMT link is anywhere near as important as we’re assuming it is, virtually everything including asset prices and macro economic data is positively correlated with “risk appetite”. From the financial markets to the financial system to the real economy. It’s all so incredibly linked, and it’s all so incredibly “high beta”.
Read the full report: FX Daily
BMO