Asian PMI data for May echoed the weakness seen elsewhere and led to another (brief) risk-off push during the Asian morning.
China’s official manufacturing PMI data caught some by surprise (only because it was released 30 seconds early!) but the trend direction was no real surprise. Falling to 50.4 from 53.3, the drop was greater than expected and sub-components showed slippage in both new orders and new exports. Slowdown was also evident in a rise in the inventories index. The weak number caused a slight drop in EUR, AUD and other risk currencies with AUDUSD pressured to its lowest since October 2011. A similar trend was apparent in the HSBC PMI reading which fell to 48.4 from 49.3 (flash estimate was 48.7). However, Asia appeared to have found itself overly short risk currencies and price action since the second release suggested more of a short-squeeze than additional positioning.
Australia was not spared PMI weakness either, with the AiG performance of its manufacturing index falling to 42.4 from 43.9, its lowest since September. The new orders sub-index fell to its lowest level since July last year and projects an environment of weak domestic demand and an uncertain global outlook. This was the catalyst for AUDUSD’s move back through 0.97 and was exacerbated by the weak China data. Ahead of next week’s RBA meeting, growing expectations of a 50bp cut rather than 25bp should limit the scope of any retracement however.
USDJPY’s move below 79.0 last night prompted the expected reaction from Japanese officials this morning. Finance minister Azumi remains convinced that the current JPY rise is driven by speculators (obviously doesn’t monitor interest rate differentials) and will take “decisive action” if excessive FX moves continue. He also invoked past G7 statements echoing a similar theme, so maybe the verbal intervention has stepped up a notch. Senior MOF official Nakao repeated the exact same comments with emphasis on the perceived speculative element. USDJPY showed no reaction however but at least did not move lower.
Another attempt at an overnight rally for EURUSD hit a brick wall above 1.24 as both month-end selling (USD buying) and negative comments spurred further selling. In contrast to yesterday the European Commission said it did not see the possibility of direct transfers between the ESM and banks while the WSJ suggested the next ECB rate cut is only a matter of when and not if. Weak US data saw US Treasury yields sink to record lows (10-yr below 1.6 percent) and this in turn pushed USDJPY to 3-1/2 month lows.
The ADP employment report was soft with a below-forecast 133k jobs added while weekly jobless claims spiked to 383k from an upwardly-revised 373k and above the expected 370k. The Chicago PMI reading was also softer (52.7 from 56.2, 56.8 expected) and at its lowest since September 2009. Meanwhile Q1 GDP was revised lower to 1.9 percent from 2.2 percent prior estimate.
Have a great weekend, once we get past the NFP report at GMT 1230.
Data Highlights
US May Challenger Job Cuts out at 66.7% y/y vs. 11.2% prior
US May NAPM-Milwaukee out at 57.7 vs. 53.4 expected and 52.9 prior
US May ADP Employment Change out at 133k vs. 150k expected and revised 113k prior
US Q1 GDP Revision out at +1.9% vs. +2.2% prior
US Initial Jobless Claims out at 383k vs. 370k expected and revised 373k prior
US May Chicago PMI out at 52.7 vs. 56.8 expected and 56.2 prior
NZ Q1 Terms of Trade out at -2.3% q/q vs. -2.8% expected and -1.4% prior
AU May AiG Performance of Manufacturing Index out at 42.4 vs. 43.9 prior
JP Q1 Capital Spending out at +3.3% y/y vs. 1.0% expected and 7.6% prior
AU Apr. RPData-Rismark House Prices out at -1.4% m/m vs. -0.8% prior
China May PMI Manufacturing out at 50.4 vs. 52.0 expected and 53.3 prior
China May HSBC Manufacturing PMI out at 48.4 vs. 49.3 prior
Upcoming Economic Calendar Highlights
(All Times GMT)
Sweden PMI Survey (0630)
Norway PMI (0700)
Swiss Retail Sales (0715)
Swiss PMI Manufacturing (0730)
GE PMI Manufacturing (0755)
EU Euro-zone PMI Manufacturing (0800)
UK PMI Manufacturing (0830)
EU Euro-zone Unemployment Rate (0900)
CA Mar GDP (1230)
US Change in Non-farm Payrolls (1230)
US Unemployment Rate (1230)
US Personal Income/Spending (1230)
US ISM Manufacturing (1400)
US ISM Prices Paid (1400)
US Construction Spending (1400)
Andrew Robinson,
SAXO BANK