China Data Gives Risk A Boost

USD/CNH Daily Chart

Manufacturing PMI above 50

Data released at the weekend has given markets a boost at the start of a new week and month. China’s manufacturing PMI came in at 50.2 in November, well above forecasts of 49.5 and the first time it has been above the 50 contraction/expansion threshold in seven months. The non-manufacturing sector also outperformed, rising to 54.4, the highest since March. The Caixin manufacturing PMI also beat estimates in the same month, rising to 51.8 instead of the 51.4 expected.

A good start for risk appetite

The improvement equities on the first trading day of a new month, with US indices rising between 0.32% and 0.37%, with the US30 index out-performing. The Japan225 was the best performer, having received an additional boost from above-forecast Capex numbers for the third quarter. Capital spending rose 7.1%, an acceleration from the 1.9% print in Q2.

Risk-beta currencies also reflected the improved environment, with AUD/USD rising for the first time in four days, up 0.20% to 0.6776 while USD/JPY gained 0.19% to 109.72. USD/CNH fell 0.04% to 7.0287 and still remains capped by the 100-day moving on a closing basis since November 4.

USD/CNH Daily Chart

PBOC to stick to conventional policy

The Governor of the People’s Bank of China published an article yesterday in which he said a prolonged downturn in the global economy is expected but stated that China’s monetary policy should remain “prudent” with allowances for adjustment. He cautioned that the central bank should stick to conventional monetary policies as long as possible as it faces a “mid- and long-distance race”.

Australia building permits slump

It would appear that cheaper mortgages in Australia on the back of recent RBA rate cuts are not helping the new house sector of the Australian housing markets. Despite reports of house prices on the rise again in Sydney and Melbourne, national building permits fell 23.6% y/y in October, a worsening from September’s -17.0%. The data had little impact on the Australian dollar this time around, with investors focusing on the better China data instead. AUD/JPY touched the highest in two weeks in early trading.

AUD/JPY Daily Chart

AUD/JPY Daily Chart

The PMI fest continues

Final Markit Manufacturing PMI reading for Germany, the Euro-zone and the UK kick off the European session. Provisional readings were 43.8, 46.6 and 48.3, respectively. New ECB President Christine Lagarde is also scheduled to speak at 1400hrs GMT.

The North American session is also PMI-centric, with the final Markit numbers for Canada and the US scheduled. The flash reading for the US was 52.2. Following on from that we have the PMI data from the US’ Institute of Supply Management (ISM), which is expected to improve to 49.4 from 48.3. That would be the second monthly improvement in a row.