Weak Global PMIs Stoking Global Recession Fears
The AUD trades higher across the board this morning, after strong Iron Ore prices and some disappointing PMI data out of the US late yesterday evening gave the Aussie Dollar a boost. Asian equities closed lower on Tuesday with the Nikkei -1.2% and Hang Seng down -1.1%. The ASX fell -1.2% as rate fears reignited recession anxiety while energy outperformed, up 1.3%. A positive 24 hours for commodities, with Gold and Silver gaining 0.7% a piece, Copper gaining 0.8%, and Iron Ore outperforming the rest gaining 1.7%. The manufacturing sector in Australia continued to expand in August, albeit at a slower rate, the latest survey from S&P Global showed on Tuesday with a manufacturing PMI score of 54.5. That's down from 55.7 in July, although it remains above the boom-or-bust line of 50. Panelists linked increased output to an uptick in sales and staff returning to work. The S&P Global Flash Services Business Activity Index fell to 49.6 in August, down from a final reading of 50.9 in July. This marked the first contraction in the Australian service sector in seven months. The Conference Board Leading Economic Index (LEI) for Australia increased by 0.3 percent in June 2022 to 119.3, after remaining unchanged in May. The LEI increased by 0.6 percent in the first half of 2022, slightly faster than the 0.4 percent growth in the second half of 2021. Looking ahead, a silent end to the week in the way of Aussie economic data, with the only event of relevance being the Jackson Hole Symposium.
USD
AUDUSD trades higher this morning, having touched almost one-week highs before trickling back down to trade at 0.6928 at time of writing. A weak performance from equities out of the US at the close yesterday, with the NASDAQ staying flat, the S&P 500 losing out -0.2%, and the Dow Jones losing out -0.5%. US business activity contracted for a second straight month in August, reflecting softer demand at both manufacturers and service providers and adding to concerns about the health of the overall economy. The S&P Global Flash US Services Business Activity Index posted at 44.1 in August, down from 47.3 in July, to indicate a further reduction in overall services activity. The decrease in business activity was sharp overall and the fastest since May 2020. Service providers noted that hikes in interest rates and inflation dampened customer spending as disposable incomes were squeezed. At 51.3 in August, down from 52.2 in July, the S&P Global Flash US Manufacturing PMI continued to signal subdued operating conditions across the manufacturing sector. The headline reading fell to its lowest level in just over two years, amid muted demand conditions and production cutbacks. Output contracted for the second successive month in August. Though marginal, the rate of decline was the sharpest recorded since June 2020. Ongoing supply chain issues, paired with weak client demand, led to the drop in output. According to the most recent survey from the Federal Reserve Bank of Richmond, many Fifth District manufacturing firms reported slowdowns in August. The composite manufacturing index fell from 0 in July to -8 in August, almost matching the June reading of -9. In a further sign that the housing market continues to weaken, new home sales in July fell to their lowest level since January 2016. The tepid sales pace matches declining builder confidence since the beginning of the year as the industry grapples with supply chain disruptions that are delaying new home building projects and raising housing costs as mortgage interest rates increased. Sales of newly built, single-family homes in July fell 12.6% to a 511,000 seasonally adjusted annual rate from a downwardly revised reading in June, according to newly released data by the U.S. Department of Housing and Urban Development. Looking ahead, eyes will be fixed to Durable Goods, Unemployment Claims, and the big one will be Prelim GDP q/q.
EUR
AUDEUR trades higher this morning, achieving 4-and-a-half-month highs of 0.6960, before coming back down to trade at 0.6948 at time of writing. Equities performed poorly out of the Eurozone, with the CAC and the DAX losing out -0.3% each. Flash France Services PMI Activity Index came in at 51.0 compared with July at 53.2 - a 16-month low. Flash France Manufacturing PMI posted at 49.0 compared with July at 49.5 - a 27-month low. The French private sector economy contracted midway through the third quarter, marking the first decline since COVID-related disruptions in the opening months of 2021. The renewed downturn, albeit only marginal, was driven principally by the manufacturing sector, although services activity growth continued to weaken. Flash Germany Services PMI Activity Index posted at 48.2 compared with July at 49.7 - an 18-month low. Flash Germany Manufacturing PMI posted at 49.8 compared with July at 49.3 – a 2-month high. Business activity across Germany’s private sector economy fell for the second month running and at a faster rate in August, latest ‘flash’ PMI® data from S&P Global showed. The deepening downturn was linked by surveyed businesses to a combination of factors that included uncertainty, high inflation and rising interest rates, all of which weighed notably on demand. Firms’ expectations meanwhile ticked up from July’s recent low, amid a further easing of rates of increase in businesses’ costs and output prices, although confidence remained historically subdued. Looking ahead, tomorrow German ifo Business Climate will be released.
GBP
AUDGBP trades higher this morning, reached over one-month highs of 0.5865, before peeling off slightly to trade at 0.5852 at time of writing. The FTSE was weak at the close yesterday, losing out -0.6%. Flash UK Services PMI Business Activity Index posted at 52.5 compared with July at 52.6 – an 18-month low. Flash UK Manufacturing PMI posted at 46.0 compared with July at 52.1 – a 27-month low. August PMI® data compiled by S&P Global and CIPS signalled a further slowdown in business activity growth across the UK private sector. The rate of expansion was the weakest for 18 months and pointed to only a marginal increase in output. The loss of momentum was often linked by panel members to relatively muted customer demand as well as shortages of both labor and inputs. Softer demand conditions led to a renewed drop in outstanding business, while employment expanded at the slowest rate for 17 months. On a brighter note, inflationary pressures moderated again in August, albeit remaining sharp overall. Looking ahead, tomorrow will see the release of CBI Realized Sales, although it is not expected to move markets.
NZD
AUDNZD trades slightly higher this morning, having attained almost one-month highs of 1.1155, before declining a little to trade at 1.1146 at time of writing. RBNZ Governor Adrian Orr is due to speak on Friday at the Jackson Hole Symposium, which may shed some light on next steps with Monetary Policy as the ‘guinea pig’ of interest rate hikers across the global economic forum.