Major Drivers October 3, 2012
Aussie Trade Balance deteriorates further
UK PMI Services the third report to miss forecast this week
Nikkei -0.04% Europe – 0.45%
Europe and Asia:
AUD AiG Performance of Service Index 41.9 versus 42.2
AUD HIA New Home Sales -5.3% vs. -5.6%
AUD Trade Balance -2.03B vs. -0.69B
EUR Eurozone Retail Sales 0.1% vs. -0.1%
GBP Purchasing Manager Index Services 52.2 vs. 53.1
USD ADP Employment Change 8:15
USD ISM Non-Manufacturing Composite 10:00
Risk FX recovered from its lows set in Asian session trade but remained lackluster in European dealing as currency markets stayed relatively quiet with little economic or geopolitical news to move prices. In Australia the terms of trade deteriorated further with Trade Balance for September printing at -2.03B versus -0.69B eyed. This was the 6th out of the past 7 months that Australia has run a trade deficit.
Australiaâ€™s deficit widened to a four year high as exports of iron ore and coal declined. Iron ore, which accounts for about 20% of the nation’s exports, is trading 30% below its peak this year in April, and about 46% lower than a record high in February 2011. Coal, which accounts for some 10% of exports, is trading at three-year lows. The data shows that the bloom is clearly off the rose with respect to the countryâ€™s mining boom and explains why the RBA was procactive in lowering the benchmark rate by 25bp yesterday.
The Aussie sold off towards the 1.0200 barrier in the aftermath of the news but rebounded to trade at 1.0230 in Europe as profit taking kicked in. Still the pair remains under heavy selling pressure and any risk off flows in North American trade are likely to push it for a retest of the lows as shorts try to probe support in the 1.0100â€™s.
Meanwhile in UK PMI services report missed it expectations printing at 52.2 versus 53.1 eyed sending cable back to the 1.6100 in morning London trade. Despite the weaker than expected headline reading the overall results were mixed with new orders expanding at their fastest pace since May but employment declining for the first time in 10 months.
The uptick in new business reflected the natural rebound in after the Olympics-related lull but companies chose not to expand payrolls as a number of panelists reported that operating conditions were challenging. Therefore growth rates of activity and new business remained below their historical averages.
The services PMI was the third consecutive miss in PMI readings this week suggesting that UK economy is clearly slowing into the start of fall as activity in all three sectors declined from the month prior. Cable slid towards the 1.6100 level in the aftermath of the report, but so far has found support at the figure in relatively muted European trade.
In North America today the focus will turn to the ADP and ISM Services reports with markets looking for slight declines in both. The ADP data has not been a good predictor of the NFP reports in its most recent releases and therefore traders may ignore the readings, but the ISM print may prove to be pivotal to the dayâ€™s trade. Markets are looking for 53.2 versus 53.7 but if ISM Services prints materially worse it could unleash a torrent of risk off selling and send high beta currencies to their session lows as fears begin to mount of a global economic slowdown.