FX News Today
The euro has been heavy, with EUR-USD ebbing to the lower 1.09s in the wake of dovish remarks from ECB boss Draghi after the European close yesterday, who said that the central bank will use all instruments, if warranted. While nothing new, his comments bring into relief the contrast with the Fed’s bias. Upcoming Fed speakers are likely to leave the door open for a possible tightening in December. The AUD remained buoyant, lifted today by healthy Australian retail sales data, which were up 0.4% m/m in September, and news that Australia’s trade deficit had shrunk more than expected in September on the back of a 3% gain in exports. The trade numbers prompted economists to upwardly revision Q3 GDP forecasts. AUD-USD posted a one-week high at 0.7224.
ECB’s Draghi struck a relatively balanced tone in his afterhours speech, expressing confidence that the bank will meet its price stability mandate; neither too high nor too low. He continued to back the success of the asset purchase program in supporting credit for firms and households. He also reiterated that the governing council “is willing and able to act by using all the instruments available within its mandate if warranted,” which was interpreted on the dovish side (with euro dipping to session lows). Draghi also remained concerned over EM growth prospects and other external factors that could impact growth and inflation. He promised to reevaluate the level of accommodation in December.
China’s services PMI (Caixin) improved to 52.0 in October from 50.5 in September. The Caixin composite PMI improved to 49.9 in October from 48.0. The Caixin manufacturing PMI, released earlier this week, showed an improvement to a still contractionary 48.3 in October from 47.2 in September. The official manufacturing PMI was 49.8 in October, matching the 49.8 in September. Overall, the October PMIs show a still shrinking manufacturing sector alongside a more upbeat service sector.
Main Macro Events Today
EMU Oct Services PMI. The final services reading is expected to be confirmed at 54.2 (med same), which after the upward revision to the manufacturing PMI at the start of the week leaves the composite with a risk to the upside. Economic activity continues to expand and national readings show more broadly balanced growth than last year, which means so far the ECB’s central scenario of a continuing modest recovery remains intact, although the risk from the external side are rising, especially as consumers, which have been propping up domestic demand, are also starting to get concerned about the general economic outlook.
ADP Employment Change. We expect a 180k October ADP rise that tracks our 180k private and 190k total payroll forecasts, following a likely trimming of the 186k September rise toward the lean 118k private payroll increase in that month. We expect a mining-restrained 15k rise in October goods employment with a 20k rise for construction and a flat factory figure, alongside a 165k climb for service sector jobs.
US Non-Manufacturing ISM. The October service sector ISM is out today to close out the October measures of producer sentiment. We expect the headline to tick up to 57.0 (median 56.5) from 56.9 in September. Other measures of producer sentiment for the month have been weaker and the ISM ticked down to 50.1 from 50.2 in September. Overall, the ISM-adjusted average for the month looks poised to decline to 49 from 50 in September.
The Fed Chair Yellen speech.