Eurozone PMI figures may mean more for the Japanese Yen than the Euro if soft outcomes feed global slowdown fears and trigger market-wide risk aversion.
Talking Points:
Soft Eurozone PMI Data May Mean More for Risk Appetite Than the Euro
New Zealand Dollar Swooned as Soft CPI Data Sank RBNZ Rate Hike Bets
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The preliminary set of October’s Eurozone PMI figures headlines the economic calendar in European hours. The region-wide composite reading is due to show the pace of manufacturing- and service-sector activity growth slowed for a third consecutive month, yielding the weakest results in 14 months. A soft print may carry greater implications for overall risk appetite than the Euro however.
The ECB seems resigned to complacency in the near term. Financial conditions in the region have deteriorated since mid-September even as the central bank introduced negative deposit rates and conducted its first TLTRO operation. Economic data outcomes swooned relative to expectations over the same period, pointing to trouble on the growth front. In response, ECB officials have counter-intuitively used public speaking opportunities to play down expectations for the upcoming asset purchase program.
On balance, this means that weak PMI readings are unlikely to be a strong negative catalyst for the single currency in as much as they probably won’t herald a forceful near-term response from Mario Draghi and company. Such results may amplify increasingly acute global slowdown fears however, fueling risk aversion and boosting demand for safety-linked assets like the Japanese Yen. We have entered short GBPJPY.
The New Zealand Dollar underperformed in overnight trade, dropping as much as 1.1 percent on average against its leading counterparts. The move tracked a slide in New Zealand bond yields as RBNZ interest rate hike bets unwound following a disappointing third-quarter CPI report. The headline year-on-year inflation rate unexpectedly dropped to 1 percent, the lowest in over a year.
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