FX Risk Sell-Off Slows

Market Brief

Markets were looking for a reason to sell-off and used the culmination of all the current macro events to rationalize a cut and run strategy. Between the Fed shifting slightly hawkish, EU heading towards deflation, corporates voicing worries over growth in the Ukraine and Russia, Argentines basic default and Ebola spreading, investors just had enough. Almost out for nowhere a modest sell-off became a collapse. Today risk appetite has only slightly less negative in Asia, after yesterday's sudden 2.0% collapse in the S&P 500. Risky assets found salvation in the better than expected China PMI. The Nikkei is lower by 0.28%, the Hang Seng down by 0.5%while Shanghai is just above fair value. Interestingly, G10 FX remained stable suggesting to us that this correction in risk should be short term. USDJPY and EURUSD were virtually unchanged drifting around 102.90 and 1.3390 respectively.

China's official manufacturing PMI rose to a two year high of 51.7 last month verse consensus of 51.4. This number was also higher then the prior read of 51.0 in June. The improvement was seen across all components except the employment index. Especially, positive was the advancement in new export orders which hit the highest level since 2009. This is a good reinforcement of our core view that global growth is improving.

In the European session traders will be watching PMI reads from the EU, UK, Norway and Sweden. Yet the primary focus will be on the US payroll report this afternoon. We anticipate a strong read across the report with NFP coming in at 265 vs 230k consensus and unemployment rate unchanged at 6.1%. Wages should be contained up 0.2%, and expected income and spending at 0.4%. what could grab a lot of attention headline PCE is expected to rise 0.2% m/m while core increase 0.1% in June. Should today's numbers come in as we expect this should reinforce the FOMC less dovish language, specifically change in inflation, and favor further USD buying.