More News, Same Story, Dollar Remains Firm

After a few sessions of light news, the flash Chinese Caixin flash manufacturing PMI and EMU PMIs provided new economic insight.  But the macro-picture has not changed very much.  China's economy has not bottomed while European growth appears to remain largely steady.  

Asian equities fell, following the US slide and the disappointing Chinese news, but after a soft start, European bourses turned higher.  European bonds yields are mostly 2-3 bp higher. 

The euro is consolidating after approaching $1.11 in Asia.  Key chart support is seen near $1.1080.  The euro recovered toward $1.1150, with the help of ECB's Nowotny, playing down the urgency of expanding or extending the asset purchase program.  Draghi is expected to reiterate the flexibility of the current program before the European Parliament today, while the Bundesbank's Weidmann can be expected to resist such notions when he speaks to a business association in Germany later today.  

Sterling can't get out of its own way and extended its recent losses to poke briefly through the $1.53 level.   The dollar fell to almost JPY119.60 in Asia but rebounded to JPY120.30 in the European morning.    Of the majors, the Antipodean were hit the hardest on the weak Chinese data, while the Canadian dollar is faring better, perhaps with the help of firmer oil prices in the wake of the 3.7 mln barrel inventory draw down reported by API. 

The flash Caixin manufacturing PMI fell to 47.0 from 47.3.  Many expected a small rise.  The details were poor.  It is the lowest reading in the short history of this time series (6 1/2 years) and the seventh consecutive reading below 50.   New orders fell to 46.0 from 46.7.  Exports orders fell to 45.8 from 46.6.   There is some risk that the focus on small and medium Chinese companies means that the Caixin survey does not pick up the government support for the larger state-owned enterprises.  That data will be released in a week's time, ahead of the beginning of the holidays on October 1.  

The flash eurozone PMI was largely in line with expectations.  The manufacturing reading was 52.0, precisely where the Bloomberg consensus had it.  It is down from 52.3 and is the third consecutive decline though the three-month average in September was unchanged from June.  The service PMI was a touch disappointing at 54.0 rather than 54.2 (54.4 in August).  The three-month average is also unchanged from June.  This suggests EMU growth remained around 0.4% in Q3.  

The interesting development was that while German disappointed, France offered a pleasant surprise, and that is not something we have been able to say much this year.  France's manufacturing PMI rose to 50.4 from 48.3.  It is the highest since June.   The consensus was for a small rise to 48.6 from 48.3.  The service PMI rose to 51.2 from 50.6.    The consensus was for a 51.0 reading.  

Germany, on the other hand, missed expectations on both reports.  The manufacturing PMI slipped to 52.5 from 53.3, just missing the consensus of 52.6.  The service PMI eased to 54.3 from 54.9.  The consensus was for 54.6.  Still, there is no reason make a big deal of the German miss.  Orders continued to rise, and the backlog was the largest in four years, suggesting no meaningful interruption of production. 

Japan's markets re-open tomorrow for the first time this week.  Japan reported the manufacturing PMI, but the highlight is the CPI, where the core rate (excluding fresh food) is expected to slip back into negative territory for the first time since April 2013.  The deputy economic minister suggested in a Singapore interview that the BOJ's goal of 2% inflation (by next September) may be delayed the impact of China's economic slowdown.  

The North American session features US Markit manufacturing PMI and another speech by the Fed’s Lockhart.  Lockhart spoke earlier this week and is one of the 13 (of 17) Fed officials that see recognize a hike this year is still appropriate.  Yellen speaks tomorrow at Amherst, and it is her first public appearance since last week’s FOMC meeting.  Separately, Canada reports July retail sales.  A 0.7% rise is expected after a 0.6% gain in June and a 0.9% gain in May. 

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