Market Drivers for December 16, 2013
EZ PMI mixed as Manufacturing improves but services decline
CNY PMI Manufacturing misses
Nikkei -1.62% Europe 0.43%
Oil $96/bbl
Gold $1230/oz.

Europe and Asia:
JPY Tankan 16 vs. 15
CNY PMI Manufacturing 50.5 vs. 51.0
EUR Flash PMI Manufacturing 52.7
EUR Flash Services 51.0 vs 51.5

North America:
USD Empire 8:30
USD Non Farm Productivity 8:30
EUR Draghi speech 9:00

A mixed set of flash PMI reading from Europe helped to push EUR/USD higher in early session Frankfurt trade as the single currency rose to 1.3775 in mid morning dealing. The Composite EZ PMI reading rose to 52.1 from 51.7 in November hitting a 31 month high, but the underlying data was mixed with Germany remaining strong but France continuing to show contracting economic activity.

France remains the weakest link in the EZ as the region’s second largest economy continues to convulse and contract with manufacturing PMI declining to 47.1 vs. 49.1 eyed while services PMI decreased to 47.4 from 48.0 the month prior. Overall the pace of decline accelerated at the fastest pace since May indicating that France will be a drag on EZ growth for the foreseeable future.

Conditions in German were considerably better as PMI Manufacturing saw its best reading in nearly two years hitting 54.2 versus 53.1 eyed. Services on the other hand surprised to the downside dropping to 51.0 from 51.2 the month prior. Conditions in the service sector remain challenging as consumer spending in the region continues to be cautious.

One bright note in the report was the improvement in economic activity in the European periphery which helped to offset the weakness in France and led to the better headline number. Although economic activity in Spain Italy and the rest of the Club Med countries is far from booming, its is showing clear signs of improvement. Today’s Italian Trade data for example saw the surplus rise to 4.07B from 1.24B eyed. The uptick in performance helped fuel some enthusiasm in the currency markets and propelled the EUR/USD to session highs.

In Asia the Tankan survey printed better than expected at 16 vs. 15 as sentiment in the corporate sector continued to improve, but the Nikkei ended down on the session and dragged USD/JPY along with it as the pair fell through the 103.00 figure before recovering that level in European trade. Part of the weakness was caused by the surprising decline in Chinese Manufacturing PMI which printed at 50.5 versus 51.0 eyed indicating that the sector continues to slow down as China tries to engineer a turn towards consumption.

The news out of China initially send AUD/USD tumbling to 8918 but the pair managed to recover its footing as the session continued trading near 8950 in London. The pair has been grossly oversold in the past week and is now trying to form a bottom near the 8900 level, but it remains vulnerable to further selloff especially if tomorrow’s RBA minutes signal that the central bank is willing to ease more in order to push the pair toward its target of 8500.

In North America today the calendar is light with only the Empire survey on the docket. All eyes this week will be on the FOMC meeting with traders looking to see if the Fed will finally provide the framework for the taper. Although labor data and growth numbers have been relatively supportive of the move, the very low inflation levels suggest that the Fed may delay any move until March which is why the greenback has been wobbly over the past several days.

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