Weak PMIs to lead Asia on a quiet news day
The calendar is looking a bit bare today with only JPY Consumer Confidence out at 3pm AEST. It’ll most likely be treated as third tier data with attention focussed on digesting soft PMI developments overnight and what has been an eventful start to Q4. It was a large miss in US ISM Manufacturing PMIs (47.8 vs 50.1) around midnight that saw markets trade out of USD, sell equities and buy bonds.
The ISM miss coupled with other weak manufacturing PMIs generates renewed global growth concern that’s likely to see last night’s hesitation filter through to today’s Asia session. Pressure now ramps up for Friday’s arguably more important US Non-manufacturing PMI print given the US economy is more service based.
USDJPY dropped 70 pips (0.6%) on the significant print and now trades around 107.7. Weaker risk sentiment should see USDJPY subdued to remain under 108. Retain USDJPY bearish bias. ASX 200 Dec Futures also looks to retain support at key level 6,650.
Not much to glean from RBA Board Dinner
Markets were hoping Governor Lowe would divulge more information last night on the RBA’s 25bps rate cut as he spoke at the RBA community dinner in Melbourne. However, commentary provided was much of the same with the overall prognosis of yesterday’s cut still suggesting there could be one more cut going into the close of the year. AUDUSD was unmoved on the news, though after, proceeded to edge towards August lows of 0.6677 breaching it for a short while.
A recap of what was said, albeit nothing new:
- Global risks tilt to the downside driving a stronger appetite to save and lower rates.
- The domestic economy driven by low rates and other factors remains on an improving trend.
- A flexible labour supply is driving underwhelming inflation outcomes.
- Australia is supported by stronger long-term fundamentals.
- The RBA recognise that “monetary policy still works” and that it was desirable to “ease monetary policy further to support employment, jobs and income growth” however “progress has been slow”.
As a final mention, Lowe draws attention to the RBA’s Financial Stability Review out on Friday. Look for AUDUSD to consolidate around 0.67 on a quiet news day with broader US risk dynamics taking precedent.
BoJ less inclined after Tankan beat?
We also had Japan’s important Tankan surveys come out yesterday morning with the two main surveys – effectively on large enterprise manufacturing and non-manufacturing – registering prints stronger than expectations. These data points are secondary in the grand scheme of BoJ things but can still be read as marginally positive for JPY (therefore USDJPY lower). Market dynamics suggests demand for selling USDJPY around 108.
