Daily Market Digest: Australia GDP, UK Manufacturing PMI, US ISM Manufacturing

Jun 01, 2:09 pm
Australian Dollar_AUD

Australian first quarter GDP beat estimates, rising 1.10% on the quarter with the year over year GDP recorded at 3.10%. UK manufacturing PMI rebounds in May, rising back above 50 and US ISM Manufacturing PMI expands to 51.3 in May.

Today’s Economic events

  • Australia AIG Manufacturing Index 51.0 vs. 53.4
  • Japan capital spending q/y 4.20% vs. 1.90%
  • China manufacturing PMI 50.1 vs. 50.0; non-manufacturing PMI 53.1 vs. 53.5 previously
  • Australia GDP q/q 1.10% vs. 0.60%; y/y 3.10% vs. 2.70%
  • China Caixin manufacturing PMI 49.2 vs. 49.3
  • Japan final manufacturing PMI 47.7 vs. 47.6
  • Switzerland GDP q/q 0.10% vs. 0.30%
  • UK Nationwide HPI m/m 0.20% vs. 0.30%
  • Australia commodity prices y/y -10.0% vs. -9.40%
  • Switzerland retail sales y/y -1.90% vs. -0.80%
  • Switzerland manufacturing PMI 55.8 vs. 54.2
  • Italian manufacturing PMI 52.4 vs. 53.5
  • France manufacturing PMI 48.4 vs. 48.3
  • German final manufacturing PMI 52.1 vs. 52.5
  • Eurozone final manufacturing PMI 51.5 vs. 51.5
  • UK manufacturing PMI 50.1 vs. 49.6
  • The UK net lending to individuals m/m 1.6bn vs. 5.3bn
  • US manufacturing (Markit) PMI 50.7 vs. 50.5
  • US ISM manufacturing PMI 51.3 vs. 50.5

Coming up

  • New Zealand global dairy index

Australia GDP rises 3.10% on the year

First quarter economic growth in Australia extended the gains from the fourth quarter, marking one of the strongest quarterly gains in two years. On a quarter over quarter basis, GDP grew 1.10%, beating expectations of a 0.60% increase in the first quarter of 2016. The previous fourth quarter’s GDP data was also revised higher from 0.60% to 0.70%, data from Australian Bureau of Statistics showed on Wednesday. On a year over year basis, Australian GDP was up 3.10% on a seasonally adjusted basis, up from a downward revised 2.90% YoY growth in Q4, 2015. The GDP was expected to beat estimates after the first quarter current account deficit narrowed yesterday.

However, despite the upbeat data, the sub-readings showed a general weakness. Terms of trade, which reflects the fall in the price of exports relative to imports fell 1.90% on the quarter and 11.50% on a year over year basis. Growth was seen coming from exports and household consumption expenditure which contributed 1.0% and 0.40% respectively. Exports increased as mining production was up 6.20%, while in the services sector, financial and insurance services grew 1.80%. While the Australian dollar reacted strongly to the data, the Aussie gave up its gains by the Europe trading session with the Australian ASX falling 1.10%.

Craig James, chief economist at Commsec Exports, said that “it is hard to argue with a mountain of evidence. Tourist arrivals, home prices, building approvals and car sales are at record highs.”

UK manufacturing PMI back above 50

After falling to an upwardly revised 49.4 in April, signaling a contraction, UK’s manufacturing PMI moved back to 50.1, data from Markit showed earlier today. The upward revision to previous month’s PMI was from 49.2 to 49.4. However, despite the better than expected data, the manufacturing PMI continued to show that the sector was under pressure posing a drag on the UK’s economy in the second quarter. While new orders improved marginally on the month, it was mostly due to domestic clients with foreign orders falling for the fifth consecutive month. The manufacturing PMI also showed a decline in job losses for the month, but the rate of reduction eased to a three-month low.

Rob Dobson, Sr. Economist at Markit said “The manufacturing sector continued its lacklustre start to 2016. Although key indicators for output, new orders and the headline PMI all ticked higher in May, the latest survey is still consistent with around a 0.8% quarterly decline in the official ONS Manufacturing Production Index. The sector will therefore remain a drag on broader economic growth, adding pressure on the service sector to sustain the upturn in GDP.”

The sterling remained weak after the released as the markets focus on the upcoming EU referendum vote due on June 23rd. Yesterday evening, latest opinion polls for The Guardian showed that support for a British exit from the EU edged higher. The leave camp was up 52 points to 48, which saw the sterling extend declines strongly falling to a 5-day low.

US ISM manufacturing rises to 51.3

ISM manufacturing in the US expanded to 51.3 in May, rising to a 10-month high. The report from the ISM showed that manufacturing sector expanded for the third consecutive month while the overall economy grew for the 84th consecutive month. New orders fell 0.1 percentage point from April while the employment index remained flat at 49.2, same as in April. The ISM prices paid rose to 63.5 in May, up from 58.0 in April. In another manufacturing report released by Markit, data pointed to a slowing in the sector with the PMI rising to 50.7 in May, up from 50.5 in April. However, this was the slowest performance in over six and half years, according to Markit.

US construction spending data was also released simultaneously which slipped 1.80% in April. The dollar did not react much to the data as various other regional manufacturing gauges remained weak with Chicago PMI showing a contraction at 49.3 and the Dallas Fed manufacturing index falling to -20.8 in May.

EUR/GBP – ING see’s upside to 0.81*

ING Analysts note that EURGBP could see further upside to 0.81 on increased Brexit risks. ING’s head of FX strategy, Chris Turner said that the markets have become too complacent in pricing very little risk of a Brexit vote. They note that EURGBP could be around 0.76 on a no-Brexit outcome. “Market complacency could be seen in the options market, with 2-month GBP/USD implied volatility dropping from 18% in mid-May to below 14% by May 26. It is now around 16%” Mr. Turner said.

EURGBP fell to a two-month low in May at 0.7564 before pushing higher. The euro gained especially yesterday after new opinion polls showed that the ‘Leave’ camp was up 52 against 48. The UK votes on June 23rd, 2016

* Institutional Call of the day is not a recommendation or an endorsement by Orbex.com to buy or sell

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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