Yesterday’s PMIs manufactured volatility in FX markets. The morning started with the dollar going bid across the G10 following a rate cut by the Reserve Bank of Australia and poor manufacturing PMIs out of Sweden, the Eurozone, the UK and South Africa. However, the tides turned around 15:00 BST after the release of the US ISM manufacturing PMI. Once regarded as one of the best indicators of the US economy by former Fed Chair Alan Greenspan, the index fell to a decade low of 47.8. The reading heightened investor fears that the global economic slowdown is more substantial than previously thought as it added to the theme of a global manufacturing slowdown. Some positivity comes in the fact that new orders, one of the leading components of the headline figure, has shown signs of stabilising – suggesting the ISM headline figure may have bottomed out. Export orders fell to 41.1, the lowest since April 2009, and consistent, if sustained, with exports falling 20% on an annualised basis. Thank the trade war. Upon the release, the US yield curve fell to levels not seen since the beginning of September as the reading stoked expectations of more Fed rate cuts. Today, New York Fed chair Williams speaks in San Diego at 15:50 BST, while the ADP employment change data for September is released at 13:15 BST two-days prior to the market moving Nonfarm Payroll data on Friday.


Sterling was once again trading with high intraday volatility of the sort normally seen in emerging market currencies, as a series of headlines caused knee jerk reactions. By day’s end, the pound was only slightly lower, however. As details of Boris Johnson’s keenly anticipated Brexit deal proposals to the EU were leaked yesterday, Irish officials duly poured cold water on them. The core of the issue remains how the Irish Border will be managed post-Brexit. Another bout of volatility was triggered in the afternoon when reports quoting anonymous sources emerged that the EU Was willing to consider a time-limited backstop. Sterling quickly rallied, but equally quickly gave back most of its gains when official sources from the European Commission denied the reports. Johnson is today expected to make a “final offer” to EU leaders, which if rejected outright could result in the UK breaking off talks completely and preparing for no-deal. With the proposal due this afternoon and being heavily reported on this morning, an EU response is likely within 48 hours, making it yet another crucial period for sterling.


The single currency was under substantial pressure early on in yesterday’s session as manufacturing PMIs fell further into contractionary territory in Spain and Italy, while Germany’s figure showed mild improvement from 41.4 to post 41.7 but remained below the breakeven 50 mark. The Eurozone manufacturing sector still remains in contraction from February and put further pressure on EURUSD following Monday’s inflation data miss from Germany. Talking of inflation, the Eurozone wide CPI measure was released yesterday at 10:00 BST. September saw headline inflation in the currency bloc fall below 1% for the first time since November 2016 and confirmed the ECB’s loosening stance. EURUSD retraced some of its decline after the US ISM release, but still closed the day in the red.


The loonie posted a slight gain against the greenback again yesterday, making it two days in two this quarter. July’s GDP reading wasn’t the catalyst for loonie strength, however, as the reading showed the Canadian economy didn’t grow in July. The ISM data from the states allowed the loonie to extend Monday’s rally. The latest GDP data extend a four-month slowdown in the economy’s expansion from March’s peak of 0.5%. While the figure in March was likely to be transitory due to the economy rebounding from the Q4 slowdown, today’s data highlights some concerns in the global economy. Sub-indices of the report added to a string of negative manufacturing survey data globally this morning. The goods industry contracted some 0.7% in July with all subsectors declining with the exception of utilities. Befitting with data from Sweden, the Eurozone, the UK, and even South Africa this morning, Canada’s construction and manufacturing sectors also contracted. Construction fell by 0.7% in July, almost negating the expansion from the prior two months, while the manufacturing sector continued June’s 1.3% decline to contract 0.1% in July.



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