Over the weekend and on Monday we will get a series of data that has become increasingly important to currency markets. Central banks around the world are in a race to cut rates, with few exceptions. The main driver is concern over slowing economic growth, as economists warn interest rates in most major economies are restrictive. This is part of the ongoing global economic shift that is impacting markets.
PMI figures give advance insight into Global economic activity. If they show consistent signs of contraction, it might be an indicator that the central bank is coming under increased pressure to ease. Some economies are doing better than others, allowing for differentiation in the path of interest rates. Traders are looking to take advantage of those interest rate gaps, which can generate radical moves in currency pairs. Particularly as we are looking as we are heading into the last batch of major data for the year.
What to Look Out For
Investors are keenly interested to see if there are any signs that the stimulus measures announced by Chinese authorities since September are having tangible effects. That could first be seen in the PMI data. Last month’s figures showed a minor improvement, with both leading indicators ticking back into expansion. Traders would likely want to see a continuation and broadening of that trend in the upcoming figures. That would allow for speculation that improvements in the world’s second largest economy will see rising demand to lift commodity currencies.
China’s official NBS November manufacturing PMI is expected to advance into expansion, though still remain fragile at 50.5 compared to 50.1 prior. The private measure, which covers a broader spectrum of smaller, export-oriented companies, is forecast to do a little better. The Caixin November manufacturing PMI is forecast to pop up to 50.9 from 50.3 prior.
European Contagion
The situation in Europe is a little more complicated, with concerns that the flu the “Sick Man of Europe” has been experiencing is contagious after French economic indicators have turned down. Some members of the ECB have expressed concern that the shared economy is already in a recession. Markets expect the upcoming data to reflect the flash figures that showed Europe falling further back into contraction.
French Manufacturing PMI is expected to be confirmed at 43.2, down from 44.5 prior. German Manufacturing PMI is seen holding the line at 43.2 compared to 43.0 prior. That would put the shared economy back on its heels, with an expectation of the preliminary 45.2 manufacturing EuroArea PMI figure to be confirmed, down from 46.0 prior.
The Anglos Are Not An Exception
Meanwhile, the UK’s rebound through the early part of the year has apparently come to a halt, with analysts pointing to the negative impact from the recent Budget weighing on the outlook. UK November manufacturing PMI is expected to slip further into contraction to 48.6, down from 49.9 prior. The flip side is that this could leave the BOE with no option but to follow the ECB’s downward rate path.
The US has seen its expectations slip into negative this year, following a surprise slowdown in the labor market. Economists have blamed restrictive interest rate policy, which could resolve now that the Fed has switched to easing. As if to suggest that, US manufacturing PMI is seen improving to 48.8 from 48.5 prior. Still in contraction, but heading in a positive direction that could keep the dollar stronger.
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