Market Driver July 24, 2012

HSBC Chinese PMI bit better at 49.5 vs. 48.2
EZ Flash PMI data slides suggesting more contraction
Nikkei off -0.24% Europe -0.38%
Oil at $88.50/bbl
Gold at $1547/oz.

Europe and Asia:
EUR German PMI Manufacturing 43.3 vs. 45.3
EUR German PMI Services 49.7 vs. 50.1
EUR Eurozone PMI Manufacturing 44.1 vs. 45.3
EUR Eurozone PMI Services 47.6 vs. 47.3
GBP BBA Loans for House Purchases 26.3K vs.31.4K

North America:
USD Markit US PMI Prelim 8:58
USD HPI 10:00
CAD Retail Sales 8:30

A quiet listless night of trade in the currency markets with EUR/USD dipping once again below the 1.2100 level in the wake of weaker than expected flash PMI data from Europe. German Manufacturing PMI missed its mark hitting 43.3 versus 45.3 eyed while Services PMI slipped below the key 50 boom/bust level to 49.7. In France the data was bit more mixed with Services improving to 50.2 from 47.9 the period prior but Manufacturing continued to contract to 43.6 from 45.6 forecast.

The German PMI results were the worst in three years indicating that the slowdown in economic activity has now spilled over to Europe’s largest economy and will likely push its GDP into negative territory in the second half of the year. With Germany seen as the sole anchor of EZ growth, the news proved disappointing to currency markets and the single currency declined to 1.2100 on the back of the data.

In addition to the weak PMI results, the euro was also pressured by the rising Spanish 10 year bond yields which reached yet another euro record high today of 7.569%. The market will now focus on today’s meeting between Spanish and German finance ministers as they grapple with the deteriorating credit market conditions in Spain. However, as many analysts have pointed out, yesterday’s downgrade of Germany by Moody’s may make the German’s even more cautious about expanding their credit which in turn could put more downward pressure on the euro.

Meanwhile in China the PMI data printed a bit better than expected rising to 49.5 from 48.2 the month prior. This was a five month high for index. The new orders sub-index recovered to a three-month high while new export orders gave their best showing since May, although both remained below 50. However, the employment sub-index fell to its lowest level since March 2009 suggesting that growth remains sluggish but may stabilizing as Chinese policymakers begin to ease monetary policy to stimulate demand.

In North America today the calendar is relatively light as well but investors will get a look at the flash manufacturing PMI readings for July giving them a read on the upcoming ISM data and the overall state of the US economy. . Expectations are for a mild decline to 52.1 from 52.4 the period prior, but if the data prints much worse approaching the key 50 boom/but level it could spur further selling of risk and EUR/USD could test the 1.2050 level as the day progresses.

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