From RanSquawk
- Manufacturing PMI data disappoints from both the core and the peripheral European economies.
- UK Construction PMI (Apr) M/M 55.8 vs. Exp. 54.0 (Prev. 56.7) – Contradicts last week’s breakdown of official GDP statistics.
- Risk aversion noted across Europe with weakness in Mediterranean financials and USD strength.
Market Re-Cap
In the early hours of the European session, continental markets opened higher, reacting to yesterday’s positive performance in the US. Sentiment quickly turned as continental Europe released its respective Manufacturing PMI figures, with even the core European nations recording declines in the sector and lower-than-expected readings. Despite the poor data, some major cash markets are clinging on to positive territory, as the CAC and DAX indices both trade higher. The Spanish and Italian markets, however, tell a different story. With both their respective PMIs recording significant declines, both now trade lower by around 2% apiece.
Against the flow of bad Eurozone news, the UK has released an expectation-beating Construction PMI figure, going somewhat against last week’s breakdown of the official GDP statistics. Markit research cites strength in commercial work and new orders as the main driver for the growth.
The downbeat data from Europe has taken its toll on EUR/USD, currently trading lower by over 90 pips, but the pair has come off the lows in recent trade. GBP/USD has mirrored the moves in the EUR and trades lower by over 40 pips, however some support has been gained from the strong Construction PMI.
Looking ahead in the session, participants await the US ADP Employment Change and US Factory Orders due at 1315BST/0715CDT and 1500BST/0900CDT respectively.
Asian Headlines
Chinese HSBC Manufacturing PMI (Apr) M/M 49.3 (Prev. 48.3) (Sources)
China’s four biggest banks issued just CNY 101.7bln of new loans in the first 25 days of April, indicating a sharp slowdown in credit growth. A report suggests dropping deposits and declining demand. (China Securities Journal)
US Headlines
Fed's Plosser said monetary policy accommodation is still needed, but the Fed may need to scale back the level of accommodation and raise rates as soon as late this year or early next year. (RTRS) On Operation Twist, Plosser commented that there is no reason to believe that the end of the operation will be disruptive as markets should have already started pricing in the effects.
US MBA Mortgage Applications (Apr 27) W/W 0.1% (Prev. -3.8%) (Sources)
EU and UK Headlines
Manufacturing PMI releases from both the core and the peripheral European economies disappoint across the board, with each individual country recording greater than expected contractions in their respective manufacturing sectors.
German Manufacturing PMI (Apr) M/M 46.2 vs. Exp. 46.3 (Prev. 48.4)
French Manufacturing PMI (Apr) M/M 46.9 vs. Exp. 47.3 (Prev. 46.7)
Eurozone Manufacturing PMI (Apr) M/M 45.9 vs. Exp. 46.0 (Prev. 47.7) - lowest since June 2009
Italian Manufacturing PMI (Apr) M/M 43.8 vs. Exp. 47.0 (Prev. 47.9)
Spain Manufacturing PMI (Apr) M/M 43.5 (Prev. 44.5)
Swiss PMI Manufacturing (Apr) M/M 46.9 vs. Exp. 51.0 (Prev. 51.1)
Greek Manufacturing PMI (Apr) M/M 40.7 (Prev. 41.3) (Sources)
The downbeat data continues with German and Italian unemployment coming in higher than expectations:
German Unemployment Rate S.A (Apr) M/M 6.8% vs. Exp. 6.7% (Prev. 6.7%, Rev. 6.8%)
Italian Unemployment Rate S.A (Mar) M/M 9.8% vs. Exp. 9.4% (Prev. 9.3%, Rev. 9.6%) (Sources)
Against the trend in the European data, the UK have posted Construction PMI that surprised to the upside, with Markit research commenting that the growth was driven by commercial work and new orders in the UK.
UK Construction PMI (Apr) M/M 55.8 vs. Exp. 54.0 (Prev. 56.7)
-Contrasts official data showing the biggest fall in construction output in three years in early 2012 (RTRS)
EQUITIES
European cash markets got off to a good start in the early hours, opening higher following yesterday’s strength in the US markets. However, the tide soon turned as the consecutive releases of Manufacturing PMI figures weighed down on the equity markets. Despite the poor data, the core indices, CAC and DAX, remain in positive territory. Underperformance is noted in the peripheral bourses following their particularly poor data releases and the IBEX and FTSE MIB both trade markedly lower.
In individual stocks news, UBS are seen making strong gains following the release of their corporate earnings pre-market. Despite posting a loss from their troubled investment banking unit, the company managed to attract a large quantity of funds, larger than the gain expected by many analysts. Although the bank managed to attract such a high volume of funds, the CEO has warned that the company still faces continuing headwinds. Following the morning, UBS currently trade higher by 4%.
The top losers in Europe throughout the morning are made up of peripheral financials, with renewed concerns over the state of the Mediterranean economies clouding sentiment and prompting risk-aversion following the release of the downbeat macro data. One bank making particular losses is UniCredit, underperforming the FTSE MIB, with the Italian data coming particularly poorly. UniCredit shares now trade lower by 4.4%.
Top performing sectors in the BE500: Consumer Goods (+0.63%), Health Care (+0.34%), Basic Materials (+0.25%)
Worst performing sectors in the BE500: Telecoms (-1.32%), Financials (-1.05%), Utilities (-0.99%)
FX
EUR weakness is noted throughout the morning following risk-aversion away from the currency as the Manufacturing PMIs continued to disappoint. The moves pushed EUR/USD through the 21-DMA to the downside at 1.3157 and now moves closer to the 100-DMA at 1.3117. The pair has come off the lows of 1.3130 in recent trade but remains to be seen lower by over 90 pips.
GBP/USD is mostly seen mirroring the moves in EUR/USD due to its exposure to the Eurozone, however the pair did see a period of support following the strong UK Construction PMIs, breaking back above 1.6200. This strength was short-lived as the pair drifted lower in line with the EUR and now trades at around the 1.6180 level.
USD strength is noted across the board as investors seek a flight to quality, pushing AUD/USD in close proximity to a touted option expiry at 1.0335 for the 10am NY cut (1500BST). AUD/USD now trades lower by over 10 pips.
COMMODITIES
WTI and Brent crude futures are trading lower ahead of the NYMEX pit open with poor European macroeconomic data dampening sentiment across the continent. A strong USD is also observed, weighing on energy prices.
Oil & Gas News:
• Barclays have raised their forecast for UK natural gas prices by 4%, citing unexpectedly large reductions in LNG shipments to Britain and low inventories across Europe.
• Russian crude and gas condensate production climbed in April to 10.33MBPD, near a post-Soviet record according to data from the Energy Ministry.
• Oilfield services company Baker Hughes has unveiled a pair of new technologies that will enable drillers to lay long and heavy casing that provides more reliable isolation than cement. The technology may be used on both onshore and offshore wells.
Geopolitical News:
• The US, EU, South Korea and Japan have proposed adding some 40 North Korean entities to the UN blacklist following the failed rocket launch, according to envoys.
• Ships burning Iranian fuel will lose insurance against risks such as collisions from July, according to the International Group of P&I Clubs, the group that provides coverage for most of the global merchant fleet.
• Essar Oil, India’s second biggest buyer of Iranian crude, plans to cut imports from Iran by as much as 15%, according to two people with knowledge of the matter.