China PMI Surges Ahead
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. The sense of relief was magnified because many investors had been mentally prepared for a soft official print after the weak private sector flash PMI released over a week ago. However, the divergence between this flash estimate and the official number has never been so large. The PMI is likely to set a positive tone for risk appetite throughout the week, although US data releases such as ISM and non-farm payrolls will also be key. In particular, the PMI 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 firm 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 due out this morning will be a more near term driver and a surprise in either direction is likely to nudge USDJPY higher – a strong report would help promote the view that the world economy is on the road to recovery, whereas any weakness would raise the risk of another round of BoJ easing. US data on Friday showed core PCE in line at +1.9% y/y while University of Chicago consumer confidence survey hit a 13-month high. BoE and ECB policy decisions are due this week and our economists expect no material change in policy settings.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank