Risk appetite is struggling to gain traction and build on yesterday’s gains this morning, as sentiment is weighed down by a mediocre set of global PMIs released overnight. Geopolitical developments have muddied the global landscape, with Israel pulling its remaining troops out of the Gaza Strip as a 72-hour ceasefire gets underway, while on the other hand a buildup of Russian forces on the Ukrainian border has spooked Kiev that more fighting could be imminent.
On the heels of Beijing engaging in targeted easing by subsidizing lending to foster homebuilder development, the HSBC Services PMI for the region dropped to its lowest reading on record at 50.0 in July, with Markit warning the slowdown was likely attributed to weakness in the property market that weighed on service demand in larger cities. While the HSBC PMI numbers have a tendency to be a tad noisy and fluctuates a fair amount, we still see this as outlier on the stabilization of the Chinese economy, with the government already taking steps to try and offset the drag from a correction in the housing market.
While a struggling Chinese economy is anything but roses for the export-intensive Australian economy, the Aussie initially saw a bid early in the Asian session, after the Reserve Bank of Australia kept their benchmark interest rate unchanged and retained their neutral policy tone. Along with the status quo announcement from the RBA (the first of four developed central banks to meet this week), the Australian trade balance figures also came in better than expected with a tighter deficit, though the early gains for the Antipodean currency have now been faded, and AUDUSD remains pinned in the low-0.93s.
Heading over to Europe, the major bourses are well situated in the green at the time of writing, buoyed off strong earnings reports that have lifted the indices’ constituents. Despite the strong company-specific news in the region, the EUR has come under pressure this morning after the final Composite PMI reading for the overall zone did not match the earlier Flash expectation and saw a slight drop from the initial report. This was compounded by the fact that the UK Service PMI blew expectations out of the water coming in just above the 59 handle, which led to a rotation out of the EUR and into the GBP, with the cross making a run at the 1.26 level and EURUSD sinking back below the 1.34 handle.
The opening bell for North American markets is just around the corner; with equity futures looking like there will be some give-back from yesterday once markets open. Both the ISM Services PMI (July) and Factory Orders (June) are set to drop at 10:00EST, with both readings expected to corroborate the narrative of a rebound in American economy. Following on the heels of the much better than expected Q2 GDP print from last week, Factory Orders will give a good indication if inventories can be expected to be revised down in the second estimate, though a reading above the 0.6% m/o/m increase in orders would likely suggest otherwise, while a strong Non-Manufacturing PMI print would illustrate momentum from the second quarter has carried over into the beginning of the penultimate quarter. USDCAD is on the rise again this morning after the weak Chinese PMI number has put pressure on commodity-linked currencies and the Loonie in general. The pair is flirting with the 1.0950 area heading into the opening bell, a level the pair hasn’t traded at since mid-March. After the American data to be released later this morning, Loonie traders will be inwardly focused at a bout of domestic data to finish the week, though any upside surprises for the Canadian economy would likely act as an opportunity for corporates that are naturally short the USD to take advantage of any pullbacks.