Weak Manufacturing PMI Stimulates Recession Fears
Dollar Flows A Key Market Driver
Yesterday’s Manufacturing PMI figures seem to have an enduring influence on today’s session, at least up to now. The decline to 3-year contractionary lows rejuvenated investors’ fears of an emerging recession. New orders dropped to a 7-year low.
Despite Services PMI represent nearly 80% of economic activity, market participants remain cautious as services could stagnate should manufacturing remain in a free-fall.
The downside on the US Index, however, could find a stop at 98.40. Traders are patiently waiting for Friday’s NonFarm payroll numbers.
Euro Up, Undeterred By Contractionarry Retail Sales
An array of Euro-wide PMIs in the earlier session supported Euro’s move to the upside. Euro was and still is, influenced by a weaker dollar. With the upbeat figures, EURUSD was able to cross above the 1.10 psychological hurdle.
Note that the flows remained positive despite the Euro Area Retail Sales numbers came out at -0.6% (exp -0.1% vs prv 1.2%). EURUSD traders now seem to be eyeing the 1.1025 level.
Poor UK Services PMI Saves Bulls A Breath
UK’s Markit Services PMI was unable to stop the bulls. Although the decline was minimum compared to the forecast (50.6 vs 50.7), the data set was indeed worst that the previous month’s figures at 51.4. Such numbers indicate that GBPUSD is also influenced by negative USD flows. PMI figures are nearing the 50 contraction mark.
Regardless, the pair is bullishly biased and could reach the 1.22 level before any meaningful pullback is seen.
Commodity Pairs Soar Too, Despite Disappointing Data
Loonie, Kiwi and Loonie did report weaker data than the European and UK economies, however, they remain strong as risk flows shift.
Australia’s Services PMI fell to a deeper contractionary level at 49.1 and its GDP remained flat at 0.5%. Despite a 1.1% forecast, New Zealand’s Commodity Price Index came out 30 basis points worse than expected. Canada’s PMI also crossed into recessionary levels at 49.1, from a 51.4 estimate.
With recession fears rising and the dollar being driven down, AUDUSD traders eye the 68c level. Kiwi eyes 64c., and USDCAD is looking towards the 1.33 support.
Safe Havens Under Pressure
While risk assets become currencies of choice, gold, yen and the Swiss franc weaken from a safe-haven perspective.
Gold is pulling back after forming a double top at 1510/oz yesterday. USDJPY seems to be heading back up at yesterday’s high at 106.40. Finally, USDCHF which although is affected by the shift in sentiment indeed, it trades lower contrary to gold and yen. This is likely amid optimistic GDP expectations. These will be released tomorrow during the European session.
Equities Break Tandem With Dollar
Despite the dollar and indices have been moving in tandem over the past few sessions on the back of trade war narratives, the relationship just broke. This is owned to a shift in sentiment. This most likely has investors thinking that now, and following the PMI drama yesterday, the Fed could be forced to cut rates in the next FOMC meeting on September 18th.