EURUSD called lower as divergence grows in macro terms

• Chinese manufacturing beats estimates but remains weak

• Draghi and Liikanen emphasise policy measures in the wings

• EURUSD called lower as divergence grows in macro terms

• US forces being strikes against ISIL within Syria, follows Iraq offensive

Markets are waiting for fresh impetus, it seems, as we open up in Europe. Last night’s Chinese manufacturing release was unable to provide any, despite beating the market’s expectations. The preliminary Chinese manufacturing PMI printed at 50.5, up from 50.2. This is a reversal of the poor August data but will do little to stymie the desire for additional stimulus into the Chinese economy beyond liquidity injections and spending on infrastructure. The swing away from a rebalancing stance by the authorities in Beijing may be enough to reverse the recent slip in trade data but the root problem of low domestic demand remains, and will weigh on local rates. AUD has come higher overnight on the news but traders seem keen on keeping it depressed as we move into the last week of the month.

The European Central Bank is hoping that policy will maintain local rates, although Mario Draghi was at pains to emphasise that the ECB would never target a lower exchange rate in his address to the European parliament yesterday. His speech touched on the Eurozone issues of slowing economic momentum, poor inflation and the unacceptably high levels of unemployment. ECB member Liikanen took to a separate podium to continue the line that the European Central Bank will engage in sovereign quantitative easing should the inflation picture remain abnormally low.

Today’s run of European and US PMIs will set the focus back on the divergence between the two economic areas. Once again it is slowing momentum that markets are looking for and afraid of. France’s composite of both the services and manufacturing industry is expected to remain in contractionary territory while Germany’s slips to the lowest in 11 months. Of course, none of this would be seen as a surprise. On the other hand, the United States measure is expected to push on from last month’s six year high. You can see why the market is so happy to be calling EURUSD lower through the rest of the year.

What this does not do is guarantee that the European Central Bank will start buying government debt anytime soon. We still think that it is unlikely in the absence of further falls in inflationary pressures but are willing to be surprised.

Geopolitical news is dominated by the US decision to begin a campaign of air strikes in Syria against ISIL forces. This escalates US involvement within the region following similar strikes in Iraq in the past month. Oil had largely priced in the move but has wandered a little higher overnight in response. There is no reason to doubt that these air strikes, should they continue, will not have a lasting effect on energy prices within the complex.

Have a great day.