Pessimism Prevails in US Services & Manufacturing Numbers

AUD

The Aussie Dollar opens relatively flat against majors with no domestic data released over the weekend. Commodities were flat while the ASX finished Friday’s session down -0.8%, ending the week down -0.9% with tech stocks taking the hardest hit. Asian equities were mixed with the Hang Seng up +0.4% while the Nikkei fell -1.9% to 1-months lows, dragged down Wall St losses amid recessionary fears in the face of interest rate hikes and hawkish FED commentary. A quiet day today, with the RBA’s Monetary Policy Meeting Minutes posting tomorrow at 11:30am AEST. Typically, these provide insight into the Board’s most recent meeting, including the economic conditions that influenced their decision on where to set interest rates.

USD

The AUDUSD opens flat at 0.6706 despite PMI data missing expectations over the weekend. After tumbling to their lowest since the Covid lockdown collapse, S&P Global’s PMI surveys were expected to rebound modestly in preliminary December data. However, the reported figures reflected further, and notable, decline. Flash Services PMI arrived at 44.4 (expectations were 46.5) while Flash Manufacturing PMI arrived at 46.2 (expectations were 47.7). Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said “Business conditions are worsening as 2022 draws to a close, with a steep fall in the PMI indicative of GDP contracting in the fourth quarter at an annualized rate of around 1.5%.” In short, the data suggests the FED rate hikes are having the desired effect on inflation, however, the economic costs & recession risks are mounting. Wall St remained soft into the weekend with the S&P500 closing -1.1%, the NASDAQ -1.0% and the Dow Jones down -0.8%. No data expected today, while later in the week we see Consumer Confidence & Core PCE releases.

EUR

The AUDEUR opens flat at 0.6332 while the DAX & CAC fell -0.7% & -1.1% respectively despite a quiet weekend. Eurozone PMI’s largely exceeded expectations, although remained contractionary as ECB’s Rhen said rates still have to rise significantly and the ECB must avoid inflation expectations becoming unanchored. ECB’s Holzmann said inflation still poses a challenge, while Villeroy hit the wires suggesting inflation will peak in the first half of 2023, adding that the European economy is more resilient than feared. This evening, we see German ifo Business Climate data expected to increase to 87.6. It’s a survey of about 9,000 businesses, gauging business conditions over the next 6 months, and functions as a leading indicator of economic health.

GBP

AUDGBP opens flat at 0.5513 with the FTSE down -1.3% as hopes of a seasonal rally faded. Chief market analyst Chris Beauchamp noted “Central banks have sent a clear message (again) to equities, telling them that they are very much on their own, and that there is no jolly fat man in a red suit turning up to hand out presents.” The UK private sector downturn eased in December, with Flash Manufacturing PMI arriving at 44.7 (expectations were 46.5) & Flash Services PMI at 50.0 (expectations were 48.5). The data pointed to a contraction of UK private sector output for the fifth month running in December amid a further deterioration in client demand. That said, the falls in business activity and new orders were the least severe since September. Nevertheless, companies took a more cautious stance with regards to staffing levels, with overall employment falling for the first time since early 2021. CBI Industrial Order Expectations data is set to be released today, with the projected figure -10 being the lowest since early 2021 and reflecting a downturn in manufacturer order volumes.

NZD

The AUDNZD opens at fresh 1-year lows of 1.0490 despite recent falls in consumer & business sentiment. Expansion levels for New Zealand’s services sector eased back in November, according to the BusinessNZ Performance of Services Index printing at 53.7. Business NZ Senior Economist Craig Ebert said that ‘November’s PSI proved, for the third month running, to be an important counterpoint to the weakening PMI. It looks as though the services industries – just like they did in Q3 – will more than make up for any weakness in manufacturing Q4, such that GDP for that quarter manages an expansion”.