Market Drivers October 1, 2015
Comm dollars Rally as Risk Appetite returns
UK PMI Manufacturing bit better
Nikkei 1.92% Europe 0.86%
Oil $45/bbl
Gold $1112/oz
Europe and Asia:
CNY Caixin PMI 49.8 vs. 49.7
GBP UK PMI Manufacturing 51.5 vs. 51.3
North America:
USD Weekly jobless 8:30
USD ISM Manufacturing 10:00
The commodity dollars got a boost in Asian and early European trade today as better equity flows revived some risk appetite and sent Aussie towards the 7100 level while kiwi climbed through the 6450 zone.
The commodity dollars got a boost in Asian and early European trade today as better equity flows revived some risk appetite and sent Aussie towards the 7100 level while kiwi climbed through the 6450 zone.
The eco news was barely supportive as the Caixin final PMI Manufacturing reading came in at 49.8 versus 49.7 eyed. This was just a tad better than forecast but still remained in contractionary territory. More importantly the services PMI declined to 50.5 from 51,5 the month prior and now stands within striking distance of falling below the 50 boom/bust line.
The data out of China suggests that economic conditions in the world’s second largest economy are unlikely to change for the better any time soon and last night announcement that the government will no longer release the flash PMI readings suggests that Chinese authorities recognize that fact and are eager to manage investor expectations as much as possible.
Despite the lack of fundamental drivers the commodity dollars found a bid as traders saw signs of at least stabilization in Chinese demand and were encouraged by the better equity flows. Several banks on Wall Street, including Goldman Sachs have suggested that the commdollars may be due for a bounce given the highly oversold conditions with GS targeting 7500 on Aussie as a possible rally point.
We think that target may be too optimistic unless commodity prices see some price demand as the year end approaches. For now the Aussie appears to have found near term support at 6900 level and the current short covering rally could take it to 7200 over the near term horizon but not much beyond that.
In North American trade the only release of note is the ISM Manufacturing report due at 14;00 GMT. The market expects a print of 50.8 versus 51.1 the month prior. Given the declines in Empire, Philly and Chicago PMI’s chances are good that the ISM will be lower this month. However the key risk is if surprises to the downside and slips below the 50 line. That could set off a much steeper selloff in USD/JPY as investors will once again question the prospect of Fed hike if Manufacturing actually slips into contractionary territory. The pair could tumble once again to test the 119.00 support
Barring any such dramatic surprises the FX trade in North American session will likely remain relatively range bound as traders await the NFP report due tomorrow.
