Major Economies Watchful as Manufacturing Growth Slows
Major economies across the world over are experiencing slow manufacturing growth, as shown by recent data coming from countries like the US and China. PMI measurements from both countries show declines, with late figures coming from China indicating a PMI below 50 and the ISM out of the US sitting at 2-year lows.
Major indices from the United States began the trading month on low notes, specifically the Dow Jones and S&P500. Both of these are tracking parallel losses with the Dow ending yesterday’s session -2.84% down and the S&P showing -2.85%. As markets return to reality after new monetary policy in China renewed positive sentiment, inflows to risk-aversion instruments have increased. The sentiment picture is not being helped by the poor PMI numbers from countries around the world, which illustrate that the global economic environment is far from healthy. Haven currencies like the Yen have received a significant boost following the revelations, as economists opine that a weakness in equity prices is harder to overcome than previously thought. Surprisingly, despite its place as a well-known risk-aversion instrument the Swiss Franc did not see the same gains as the Yen, posting muted reactions to global concerns.
Several figures from the Institute for Supply Management in the United States shed light on the specific mechanisms by which the manufacturing sector is hurt. The overall index saw a fall from the previous month’s 52.7 to 51.1, a substantial drop that exposes a 2-year low. The individual parts that make up this index such as the new orders sub-index, the prices paid index and the employment index also experienced disappointing declines. Disastrous slides in new orders and prices paid, in particular show just how bad manufacturing health is currently. The former dropped to 51.7 from 56.5, while the latter hit 39 from the previous 44. Weakness in commodities is generally superseding the effect this has on the dollar against commodity currencies, yet EURUSD saw a rise of 0.95%. USDJPY and GBPUSD both saw brief declines before a slight overnight retracement.
The GDP data from last quarter recently released in Australia shows the slight declines that the RBA was expecting, and so naturally a shift in monetary policy during their meeting yesterday was not seen. Australian policymakers are keeping their ears to the ground and welcome the possibility of future monetary policy accommodations should they become necessary. GDP anticipations were for growth of 0.40% yet only 0.20% was posted, a far cry from the previous quarter’s 0.90% expansion. Proportionately, the Australian dollar fell -1.39% versus the US dollar yesterday amidst the slowest GDP expansion since June of 2012, but reversed during the Asian session, currently 0.20% higher against its peer.
GBPUSD Downward Channel Trading Opportunity
In spite of a strong showing for economic data and rising expectations that the Bank of England will move to hike interest rates in early 2016 the GBPUSD continues to pullback as correlations break down amid the pervasive market volatility. The dollar managed to post gains against the Pound and commodity currencies despite giving ground versus the Euro and Yen highlighting a renewed bout of risk-aversion flow impacting markets. The downward trending channel pattern emerging in the GBPUSD pair has a bearish bias with ideal positions initiated at the upper channel line targeting the lower channel line. Fighting the near-term downtrend is not suggested due to the worsened reward potential and heightened risks.