Market Drivers for June 23 2014

CNY PMI – expands for first time in 6 months AUD lifted to near 9450

EZ Flash PMI miss with France weakest sending EUR below 3600

Nikkei .13% Europe -.56%

Oil $108/bbl

Gold $1316/oz.

Europe and Asia:

CNY PMI 50.8 vs. 49.7

EUR EZ PMI 51.9 vs. 52.2K

EUR EZ PMI 52.8 vs. 53.4
GBP Credit Conditions

North America:

USD Flash Manufacturing PMI 9:45 AM

USD Existing Home Sales 10:00 AM

Weaker than expected EZ flash PMI data readings pushed EUR/USD below the 1.3600 level in morning European trade today while Aussie continued to attract buyer after Chinese PMI expanded for the first time in 6 months.

In Europe the EZ PMI readings showed a mixed picture with France continuing to slip further into contractionary territory. French PMI reports printed markedly worse than forecast at 47.8 versus 49.6 for manufacturing and 48.2 vs. 49.5 for services. This is the 8th month out of the past 9 that French PMI data has fallen underneath the 50 boom/bust line indicating that Eurozone’s second largest economy remains mired in recession.

The dour news was somewhat offset by continuing strong performance out of Germany which remained well above the 50 line with PMI manufacturing printing at 52.4 and services at 54.8. Although even in Germany the data was weaker than the month prior suggesting a bit of a slowdown in demand. Overall, however the EZ PMI data remained in expansionary territory, but barely so with Manufacturing PMI at 51.8 and Services at 52.8.

The markets reacted negatively to the news with EUR/USD dropping below the 1.3600 figure, but the selloff remained contained for the time being with the pair stabilizing at 1.3580. The bottom line from today’s data is that while it was worse than forecast, it was not so horrid as to force any further policy changes from the ECB and therefore the market’s quickly settled down after the initial adjustment for the news.

Elsewhere in Asia the data was considerably better with Chinese HSBC Manufacturing PMI printing at 50.8 versus 49.7 as the index climbed into expansionary territory for the first time since last year. The news brought buyers into AUD/USD which climbed just shy of 9450 before profit taking kicked in. The Aussie now finds itself at the best ;level since April and within striking distance of the yearly high.

If the pair can clear the 9450 barrier it could make a run towards the key 9500 level, but that is certain to evoke some concerned rhetoric from RBA which has continued to state that the Aussie exchange rate is too high and could hurt the country’s terms of trade position. Still, the Australian monetary authorities are unlikely to lower rates unless the economic conditions deteriorate further which still leaves the Aussie as the key yield play in the G-20 universe.

Finally in North America today the focus turns to housing with Existing Home Sales expected at 1400 GMT. The market is looking for a slight improvement to 4.74M units from 4.65M the month prior and any upside surprise could extend losses in the EUR/USD if it translates into higher US yields. Last week Fed Chief Janet Yellen essentially squelched any expectations of an early Fed tightening move but if US data continues to improve pulling US yields up, the drop in the EUR/USD should resume.

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