PMIs Disappoint Again
The series of PMI estimates showed further contraction in some of the European services sectors. in September. Spain (40.2 from 44.0), France (45.0 from 46.1), Germany (49.7 from 50.6) all missed consensus estimates, though the composite indicator ticked up marginally (though still remains in contraction territory). Data in the UK was relatively better (52.2), but still dropped markedly from the previous reading (53.7). UBS economic expects a rebound in the UK data in Q3, however. The dollar was generally better bid overnight, though most of the flow came in the Asian session, led by further declines in the Australian dollar. Australian exports fell sharply in August, reflecting softer commodity prices that are only now beginning to make their presence felt in economic data releases. Exports values fell 3.3% m/m and 12% y/y, reinforcing the view of our Australian economics team that the RBA is likely to cut again before year-end – probably in November. The FX reaction was initially muted, however, and AUDUSD only surrendered 20 pips, but consistent selling throughout the European session pushed AUDUSD towards 1.02. Earlier, Tasmania became the latest of Australia’s states to lose its triple-A rating. Moody’s downgraded Tasmania one notch to Aa1. Again the FX reaction was underwhelming – but justifiably so on this occasion given the total stock of Tasmanian debt on issue is only A$3.1bn, according to Bloomberg. Yesterday in Europe, delays surfaced in three guises: Moody’s announced that it is still reviewing Spain’s sovereign rating, and that it will make a decision this month (earlier guidance suggested a verdict in September); in Spain, Prime Minister Rajoy seemed to reject press speculation that he is ready to request external aid, and clearly indicated he is in no hurry to do so; finally, in Greece, Finance Minister Stournaras said it is unclear if ongoing negotiations with the Troika will have reached a conclusion in time for the EU Summit on Oct 18-19.
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UBS Investment Bank