Negativity surrounding China’s growth prospects kept sentiment to the downside overnight after yesterday’s flash manufacturing PMI, compiled by HSBC, indicating manufacturing in the region continued to shrink in September. This negativity was compounded after the Euro-zone composite manufacturing PMI fell deeper into contraction territory, with the index falling to a 39-month low of 45.9 in September. After an extended period of post-Draghi optimism, we’re beginning to see fundamentals emerge as the primary driver of sentiment in the euro region with the health of Europe’s manufacturing in doubt amid signs the world’s second largest economy, China, won’t be there to break the fall. Strong demand for Spanish debt at auction failed to reignite a sustained sense of optimism with the 10-yr benchmark fetching a yield of 5.7 percent, down from 6.7 percent in a previous auction.
These same worries were also displayed across the Atlantic, with China’s economic stability of primary concern. This took priority overnight despite a moderately better Philly-fed index which fell 1.9 index points in September, against a fall of 7.1 in August, suggesting the pace of the fall in manufacturing activity is slowing. Economists’ had anticipated a greater fall of 4.5. Earlier in the session the US Markit preliminary manufacturing gauge came in at 51.5 in September, unchanged from August.
The greenbacks safe haven properties kicked into gear leading a charge higher against its risk currency counterpart, albeit remaining out of favour against the perceived safety of the Yen. The euro’s time in the sun has been eclipsed by a series of negative themes from the region, with Spain’s apparent reluctance to formally request a bailout still a key point of contention. Nevertheless, we saw political uncertainty in the region take priority overnight with the autonomous region of Catalonia launching a push to separate the region from flagship Spain, as the crisis threatens to drag their comparatively strong economy down alongside the rest of Spain. Catalonia’s leader, Artur Mas stated in a news conference, “The people and society of Catalonia are on the move, as we have seen on Sept. 11, and not willing to accept that our future will be gray when it could be more brilliant.”
After breaking the downside of 104 US cents for a period, the local unit was able to regain composure in the latter half of US trade. Value traders moved in after the Aussie fell to lows of 103.66 US cents late yesterday and began to grind higher in the U.S session alongside equity markets. Nevertheless, its apparent The Aussie’s window of opportunity for upside is being negated by concerns China may not be the pillar of strength seen in recent years, amid a surprising lack of sustained optimism over the Fed’s latest stimulus venture. At the time of writing the Australian dollar is buying 104.3 US cents.