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Weak China PMI not enough to offset BoJ-led positive impetus - Westpac

FXStreet (Bali) - Jonathan Cavenagh, FX Strategist at Westpac, notes that while weak Chinese PMI over the weekend poses a risk to currencies closely linked to the China story, it may not be enough to offset the positive impetus provided by the BoJ on Friday.

Key Quotes

"The official China PMI printed at 50.8, compared with a consensus of 51.2 and the previous month’s print of 51.1. The softer than expected result is in line with last week’s Westpac MNI China consumer sentiment index reading, where the headline index fell from 113.2 to 110.9. It is also consistent with the flash PMI result released a week and half ago, which while showing an improvement in the headline result, showed soft detail. Overall, the weekend data brings further into question the likelihood of Q4 bounce in aggregate activity measures. In turn this creates risks for currencies linked to the China growth story and for CNY/CNH. Please see more details below."

"The detail of the PMI result was not disastrous despite the fall in the headline index. Output eased to 53.1 from 53.6 in September but this remains above the level recorded in June (which was 52.8). New orders fell to 51.6 from 52.2 in the previous month, while inventories rose from 47.2 to 47.9. This saw the new orders to inventory ratio to 1.077 from 1.105 for the previous month. This is decent decline but the ratio for October is still above the weakest reading from earlier in the year, which was recorded at just 1.05 in March. Elsewhere, new export orders fell below 50.0 for the first time since May. In a sign of weak domestic demand, we saw the import sub-index dip to 47.9, while the input price measure fell to 45.1, which is the second weakest for the year after March’s 44.4 print."

"There is likely to be a continuing chorus of calls for fresh stimulus to boost China’s outlook, which will only be reinforced by the weekend data. However, there have been some positive developments on this front. The authorities relaxed property rules at the end of September and last week at a state council meeting it was reported that China will ‘stabilise’ property-related consumption. Still, any improvement in our China data pulse through the remainder of Q4 is likely to be fairly modest and is unlikely to provide the market with much inspiration."

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