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China’s Manufacturing PMI Weighs on Risk Sentiment Early On

Bob Mason
Economic data out of China gives the markets a rude awakening in the New Year, wiping out risk appetite at the start of the day.

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, but certainly didn’t lack influence, with key stats limited to December’s Caixin Manufacturing PMI figures out of China, Japan and New Zealand markets closed for the day.

Out of China, the Caixin Manufacturing PMI came in at 49.7 for December, which was worse than a forecasted rise from November’s 50.2 to 50.3.

  • Chinese manufacturing production increased marginally at the end of the year, following 2-months of stagnation.
  • Total new orders fell slightly however, with companies reducing factory gate prices for a 2nd consecutive month amidst a weaker demand environment. The fall in new orders was the first since June 2016.
  • New export orders fell for a 9th month in a row, though at a softer pace than in November.
  • Employment numbers continued to fall, with firms looking to reduce operating costs alongside a decision not to replace voluntary leavers.
  • Firms were able to reduce factory gate prices without too much impact on margins, with input prices falling for the first time in over 18-months.
  • Firms expanded their purchasing activity for a 3rd consecutive month, the increase attributed to a forecasted rise in costs rather than a particularly positive outlook ahead.
  • Confidence towards the year ahead rose to a 3-month high, while still subdued, weighed by concerns over softer client demand and restrictive government policies surrounding production.
  • The deterioration of conditions in the sector was the first since May 2017.

The Aussie Dollar moved from $0.70363 to $0.70247 upon release of the figures, before rising to $0.7026 at the time of writing, down 0.38% for the session, the numbers out of China doing the damage early on.

Elsewhere, the Japanese Yen stood at ¥109.6 against the U.S Dollar, up 0.13% for the morning, supported by the risk off sentiment early on. For the Kiwi Dollar, it was a red start to the day, the Kiwi down 0.19% to $0.6704.

In the equity markets, a positive start to the day for the ASX200 was short lived, with this morning’s manufacturing PMI out of China weighing, the ASX200 down 0.58% at the time of writing. With the Japanese market closed for the day, it was left to the Hang Seng and CSI300, the pair down 1.25% and 0.52% early on in the session, with the negative stats offsetting positive news from the Oval Office on initial trade talks and an early rise in the U.S futures.

The Day Ahead:

For the EUR, economic data scheduled for release includes December’s manufacturing PMI numbers out of Spain, Italy, France, Germany and the Eurozone, numbers out of France, Germany and the Eurozone being finalized figures. Barring any material deviation from prelim figures out of France and Germany, focus will be on the numbers out of Italy, with a bigger contraction in the manufacturing sector likely to weigh on the EUR.

Outside of the numbers, market risk sentiment will also influence through the day.

At the time of writing, the EUR down 0.11% to $1.1452.

For the Pound, economic data is limited to December’s manufacturing PMI figures that will provide the Pound with some direction, though near-term focus will continue to be on Brexit and the 14th January parliamentary vote on the Brexit deal.

At the time of writing, the Pound was flat at $1.2740, with any Brexit chatter through the day likely to overshadow today’s PMI numbers.

Across the Pond, economic data scheduled for release out of the U.S is limited to finalized December Markit Manufacturing PMI numbers, which will unlikely have a material impact on the Dollar, barring a material deviation, with focus through the day being on any further updates on initial trade talks between the U.S and China ahead of next week’s get together.

Risk sentiment through the day will also provide direction through the day.

At the time of writing, the Dollar Spot Index was up 0.08% to 96.165, with chatter from Capitol Hill to provide direction through the day.

For the Loonie, it’s a quiet day on the data front, leaving the Loonie in the hands of crude oil prices through the day, this morning’s manufacturing PMI number out of China and any updates from trade talks between the U.S and China to provide direction through the day.

The Loonie was down 0.07% to C$1.3638 against the U.S Dollar at the time of writing.

This article was originally posted on FX Empire