Frightful Chinese data

​​​​​Today's news headlines:

  • ‘EU weighs new anti-money laundering body in wake of scandals’ – The European Union is considering a central authority to crack down on money laundering within the bloc following a series of money-laundering scandals. France and the Netherlands have said the best solution would be to create a new authority body from scratch but fear it may take too long. An alternative would be to boost the existing European Banking Authority. (Financial Times)
  • ‘BoJ sends clearer signal of rate cut chance; keeps policy steady’ – Overnight, the Bank of Japan kept monetary policy steady but signalled future rate cuts may be necessary due to overseas risks potentially derailing Japan’s fragile economy. The central bank maintained its short-term target rate at -0.1% and its pledge to buy 80 trillion yen in government bonds annually, but changed forward guidance to consider future rate cuts to achieve price stability. (Thomson Reuters)

Sand remains stable

Our hopes for the Federal Reserve interest rate announcement came true. Fed chairman Jerome Powell announced a 25Bps cut to the Fed target rate but also said the Federal Open Market Committee will monitor upcoming data to determine whether further action is required. This is what markets have unhelpfully called a hawkish cut. Markets remained very calm which demonstrates this course of action was the central predicted outcome. All-in-all the stability is good news, indicating the world’s most important central bank is communicating policy effectively. 

A lot of economic data released yesterday came out rather mixed, little of which is worth repeating. However, there were two pieces of data of note; the two Chinese Purchasing manager Index (PMI) releases. PMI is survey data which is released shortly after collection which provides a very timely estimate of business conditions. It is considered one of the most prominent forward-looking economic indicators of sector performance. This morning, Chinese PMI for manufacturing and non-manufacturing were both released and were worse than last month and worse than anticipated. Prominently the non-manufacturing PMI at 52.8 was the second worst reading since 2012, while still showing a marginally positive outlook (50 is considered the neutral no-change level). We can claim there is no stunning statistic about the Manufacturing reading, but it is still quite poor and shows more clear contraction at 49.3. 

Bottom Line: The US Dollar continues to nudge lower in reaction to yesterday’s calm; Chinese PMI  data has had seemingly no impact on risk appetite.  We are watching out for the host of European data releases this morning for any obvious signs of deterioration

GBP/USD

The pair edged higher in overnight trading following the Federal Reserve’s interest rate cut, with Cable reaching highs of 1.2952 on London open. The pair continues to trade between 1.28 and 1.30 as Brexit uncertainty has been extended for three months. Broader Dollar weakness is likely to keep the pair at the higher end of this range as we head into November.

GBP/EUR

The pair is largely unchanged following last night’s Fed rate cut decision as both Sterling and the Euro gained while the Dollar weakened. The currency cross looks set to end the month in its 7-day range of 1.1530 and 1.1630. This morning’s European data may push the currency pair to test the extremes of this range in today’s session.

EUR/USD

The currency pair ticked closer to the 1.12 figure (also its 200-daily moving average) on broad Dollar weakness following the Fed’s decision to cut interest rates. Key European data out this morning could be the catalyst for the pair to test this level for the first time in 10 weeks. Although October’s high of 1.1179 will be the first test for the pair as we end the month.