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It was all about Manufacturing PMI today.
Manufacturing PMI indicates China’s slow economic growth. HSBC Manufacturing
PMI decline to 48.2, below forecast of 49.7 and 49.4 last month, lowest in 15
months. It suggests China struggles to push back to previous economic growth.
China’s Q2 annual growth rate was 7%, which is the lowest since the financial
crisis in 2008. Investment takes about 47% of China’s GDP. Along with volatile
Chinese stock market, slowing in manufacturing sector can harm China’s growth,
so as demand of commodities.
German
PMI also declined to 51.5, below forecast of 51.9 and 51.9 last month. Germany
has the largest manufacturing industry in Europe. This slow in manufacturing sector
suggests slow in German economy, but 51.5 is still above 50, which means that
manufacturing sector is likely to expand.
Japanese
PMI rose to 51.4 from 50.1 last month, exceeding forecast of 50.5. Recently the
Bank of Japan mentioned that it may implement another stimulus in financial
market to maintain low exchange rate. Japanese exports in June rose to 9.5%
from 2.4% last month, yet below forecast of 10.0% on Wednesday. Japanese firms
enjoy weak yen, and it is likely the Japanese government likes to maintain it
to succeed it third arrow of Abenomics: structural reform.
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| Source: Investing.com |
EUR and GBP stay almost unchanged today. Despite German
Manufacturing PMI suggested slower economic growth. It dragged EUR and GBP after
the market open, but sudden drop in U.S. New Home Sales to 428,000 from 517,000
last month, below forecast of 546,000, limits the drop as U.S. interest issue
eased.
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| Source: Investing.com |
It is declined by 6.8% from last month. Housing market
takes the largest portion of the private consumption. Sluggish housing market
may postpone increase in U.S. interest rate that might be raised in September.
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| Source: Investing.com |
AUD weakens against USD as China’s Manufacturing PMI
falls, hitting the 6-year low. Slowing Chinese growth means less demand for
commodities like iron ore, which is one of the Australia’s major exports. Along
with recent strong USD, fall in commodity prices such as oil hurt
commodity-related currencies like Australian and Canadian dollar. On Tuesday,
the Reserve Bank of Australia indicated that it will encourage weaken AUD,
which suggests further decline in its interest rate.
Low
demand of commodities caused by slow economic growth in China and Europe
weakens AUD, and it is likely to decline further if the economy gains back its
pace. Monetary stimulus is like a Band-Aid that temporarily covers a problem. A
fundamental issue has to be resolved to recover its economic condition.
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| Source: Investing.com |
JPY strengths by 0.12%. Yet its strength is limited as
the BOJ implements additional stimulus to maintain current level of yen to
encourage exports and structural reform. The BOJ’s target inflation is 2.0%,
which is far above current inflation rate of 0.4%. The BOJ expects to meet the
target in the first half of 2016. Weak yen increases import price, which helps
to boost inflation rate. But it can hurt its economy without better labor
market condition. Japan total cash earnings rose by 0.6% in May.
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| Source: CNBC.com |
Crude oil declines as demand issue rose from weak
manufacturing PMI reports in China and Germany. OPEC already said that it won’t
take any action even if oil price falls below $50 as long as it stays for a
short term. Yet the OPEC may step inside if low price stays for long; it may
cut its supply.
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