Risk FX saw massive volatility on the close of Asian trade as weak Chinese PMI data followed by shocking low French flash PMI readings sent EURUSD tumbling for more than 100 points through the 1.2950 level. However, stronger than expected results out of Germany helped to stabilize prices with EURUSD recovering to 1.2975 in the first hour of European open.
The HSBC flash PMI ticked up to 47.8 in September from a nine-month low in August of 47.6, but remained below the 50 boom/bust level for an 11th month in a row, showing the sector was still contracting. An output index hit a 10-month low suggesting that demand continues to contract as Chinese economy slows into the year end. The news sent commodity sharply lower with Aussie breaking below the 1.0400 barrier while kiwi reversed its earlier GDP-led gains to trade back towards the 82.00 figure.
However, the true body blow to risk tonight came from the very disappointing French flash PMI data with manufacturing diving to 42.6 from 46.5 eyed while services declined to 46.1 from 49.5 to move further into contractionary mode. French data indicates that its economy is acting more like the periphery Club Med members rather than the solid performance of the core. In contrast, German data improved with manufacturing increasing to 47.3 versus 45.4 while services actually moved to expansionary mode of 50.6 versus 48.5.
The key question going forward is whether the dichotomy in performance between France and Germany will create a greater sense of urgency to unify financial institutions further in order to stabilize conditions in the Eurozone or whether tonightâ€™s results will only make Germany more intransigent to any plans for fiscal stimulus and transfer payments.
For now investorâ€™s attention will turn to the Spanish auction at 900 GMT which could either calm the markets if the uptake is strong or revive the de-risking flows that have been dominant since Asia trade.