The major event for Asia today was the release of the China HSBC flash PMI reading for July. The PMI improved to 49.5 from 48.2, the first improvement seen in 3 months and the highest reading since February (49.6). The last PBOC rate cut delivered start-July probably played a part in the improvement, as did continued liquidity injections into the financial system. The flash figure is based on 85-90 percent of total responses and this year has had a good track record in predicting the eventual number – matching exactly on 4 occasions and one each for upward and downward revisions. While the improvement is welcomed by optimists looking for stabilization in the China economy, the index has been below the key 50 contraction/expansion threshold for the past 9 months, a clearer picture will not emerge for a few months. The full data is scheduled for release on August 1.
In contrast, other China data showed the month-on-month growth rate of the Conference Board’s leading index slowing to a mere 0.1 percent in June following 1.1 percent seen in May. All but one of the six components of the index slowed significantly, with bank loans the only category registering a positive, indeed being the only component consistently rising over the last 6 months. The coincident index, registering current economic activity registered a 0.5 percent m/m increase following a 0.6 percent rise in May.
We did see risk currencies attempt a rebound immediately after the PMI release, but the move was not convincing (at least in the short-term) with EURUSD only managing a 10-15 point rally before retracing lower. Equity markets across the region were mixed with Hong Kong activity delayed by a morning typhoon warning.
Ahead of the Tokyo open this morning, Japanese finance minister Azumi was once again sabre-rattling on the JPY’s current strength. The tone of the comments were marginally more aggressive than yesterday as he reiterated decisive steps would be taken when necessary, no measures will be ruled out and that recent one-sided JPY moves do not reflect fundamentals. USDJPY holds above the 78.0 level during the Asian session.
Elsewhere, in a speech titled “The Lucky Country”, RBA’s Stevens commented that Australia’s economic performance had been remarkably good, given the dire global background, with a combination of high household savings, caution on debt and a (relatively) stable housing market all contributing. Should there be a dramatic deterioration in the global situation then he acknowledged that the AUD would likely fall, but this would help to provide stimulus to the economy. He downplayed fears of a China slowdown, suggesting the authorities are willing and able to stimulate the economy as needed.
The EURUSD pushed through the 1.21 mark early in yesterday’s European session as Spanish government bond yields hit a new EU-era high and the pair extended losses after Spain’s market regulator announced a 3-month short-selling ban on stocks (Italy also announced a 5-day short-selling ban on financial counters). The push went as far as 1.2067 before a mild rebound in the Spanish stock index forced a gradual recovery.
The recovery met headwinds just shy of Friday’s NY low, however, as Moody’s shifted Germany, Netherlands and Luxembourg’s outlooks to negative from stable. Italian bonds were also under pressure as Europe’s clearing house LCH announced additional margins on some bonds. Oil prices sank 4 percent on the day which piled pressure on the commodity FX-ers CAD and AUD.
Data releases were sporadic but the US Chicago Fed activity index was a mild surprise as it came in slightly better than last time at -0.15 (revised -0.48 last) though it is still in contraction territory. Euro-zone consumer confidence was a disappointment however with a dip to -21.6 in July, close to a 3-year low, but this was hardly surprising given the developments across the region of late.
Data Highlights
US Jun. Chicago Fed Activity Index out at -0.15 vs. revised -0.48 prior
EU Jul. Euro-zone Consumer Confidence out at -21.6 vs. -20.0 expected and -19.8 prior
China Jun. Conference Board Leading Index out at +0.1% m/m vs. +1.1% prior
China Jul. Flash HSBC Manufacturing PMI out at 49.5 vs. 48.2 prior
Upcoming Economic Calendar Highlights
(All Times GMT)
GE PMI Manufacturing/Services (0730)
EU PMI Manufacturing/Services (0800)
UK BBA Loans for House Purchase (0830)
CA Retail Sales (1230)
US Fed’s Bernanke to speak (1245)
US Markit US PMI – Preliminary (1258)
US Richmond Fed Manufacturing Index (1400)
US House Price Index (1400)
Andrew Robinson,
SAXO BANK