Europe Open: China flash PMI falls to 11-month low – 24 March, 2015

Market Roundup

• SF Fed Williams: Mid-year rate rise may be appropriate, hikes should be gradual, close to full employment, USD has huge effect on forecasts, U.S. economy can handle strong USD.
  
  
• Chinese Premier Li asks IMF to include CNY in SDR basket.
  
  
• PBOC lower guidance rate for 7-day reverse repos to 3.55%, 3.65% previous.
  
  
• ADB: China growth cooling to 7.2%, developing Asia steady at +6.3%.
  
  
• China March HSBC flash mfg PMI 49.2, 11-month low, 50.6 consensus, Feb final 50.7.
  
  
• Japan March flash mfg PMI 50.4, Feb 51.6, new orders 49.5 vs 51.0, sub-50 for first time in 10-months, new export orders 52.2 vs 53.7, weak JPY helping, output sub-index 52.0, lowest since October.

Economic Data Ahead

• (0400 EDT/0800 GMT) France Mar PMI mfg - flash, 48.5 consensus; previous 47.6.
  
  
• (0400 EDT/0800 GMT) France Mar PMI services - flash, 52.8 consensus; previous 53.4.
  
  
• (0400 EDT/0800 GMT) France Mar PMI composite - flash; previous 52.2.
  
  
• (0430 EDT/0830 GMT) Germany Mar PMI mfg - flash, 51.5 consensus; previous 51.1.
  
  
• (0430 EDT/0830 GMT) Germany Mar PMI services - flash, 55.0 consensus; previous 54.7.
  
  
• (0430 EDT/0830 GMT) Germany Mar PMI composite - flash; previous 53.8.
  
  
• (0500 EDt/0900 GMT) Eurozone Mar PMI mfg - flash, 51.5 consensus; previous 51.0.
  
  
• (0500 EDt/0900 GMT) Eurozone Mar PMI services - flash, 53.9 consensus; previous 53.7.
  
  
• (0500 EDt/0900 GMT) Eurozone Mar PMI composite - flash, 53.6 consensus; previous 53.3.
  
  
• (0500 EDt/0900 GMT) Italy Feb wage inflation; previous +0.7% m/m, +1.1% y/y.
  
  
• (0530 EDT/0930 GMT) UK Feb CPI, +0.3% m/m, +0.1% y/y consensus; previous -0.9%, +0.3%.
  
  
• (0530 EDT/0930 GMT) UK Feb RPI, +0.5% m/m, +1.0% y/y consensus; previous -0.8%, +1.1%.
  
  
• (0530 EDT/0930 GMT) UK Feb RPIX, +0.5% m/m, +1.0% y/y consensus; previous -0.9%, +1.2%.
  
  
• (0530 EDT/0930 GMT) UK Feb PPI - output, unchanged m/m, -1.9% y/y consensus; previous -0.5%, -1.8%.
  
  
• (0530 EDT/0930 GMT) UK Feb - core, +0.1% m/m, +0.4% y/y consensus; previous +0.2%, +0.5%.
  
  
• (0530 EDT/0930 GMT) UK Feb PPI - input, +1.6% m/m, -12.4% y/y consensus; previous -3.7%, -14.2%.
  
  
• (0830 EDT/1230 GMT) US Feb CPI, +0.2% m/m, -0.1% y/y consensus; previous -0.7%, -0.1%.
  
  
• (0830 EDT/1230 GMT) US Feb - core, +0.1% m/m, +1.6% y/y consensus; previous +0.2%, +1.6%.
  
  
• (0830 EDT/1230 GMT) US Feb real weekly earnings; previous +1.2% m/m.
  
  
• (0900 EDT/1300 GMT) US Feb home prices; previous +0.8% m/m, +5.4% y/y.
  
  
• (0945 EDT/1345 GMT) US Mar Markit mfg PMI - flash, 54.7 consensus; previous 55.1.
  
  
• (1000 EDT/1400 GMT) US Feb new home sales, 470k units AR consensus; previous 480k, -0.2% m/m.
  
  
• (1000 EDT/1400 GMT) US Mar Richmond Fed services/mfg shipments/comp indices; previous 18, -1, 0.
  
  
• (1130 EDT/1530 GMT) US Feb Cleveland Fed CPI; previous +0.2%.

Key Events Ahead

• N/A BoE FPC meeting, German FinMin Schaeuble-IMF Gaspar Berlin meeting.
  
  
• N/A ECB Constancio, Fed Bullard et al at London IFSF conference (till 26th).
  
  
• N/A Netherlands E5+ bln 0.25% 2025 DSL auction.
  
  
• (0530 EDT/0930 GMT) ECB 7-day refinance at fixed 0.05%, E120 bln allotment consensus, previous E142.4 bln.
  
  
• (0600 EDT/1000 GMT) Riksbank Gov Ingves Riksdag closed hearing.
  
  
• (0800 EDT/1200 GMT) US TsySec Lew speaks at Maryland conference.
  
  
• (1030 EDT/1430 GMT) BdF Gov Noyer presents '14 annual report.

FX Recap

USD/JPY was relatively stable in Asian session today after easing yesterday. It rose to 119.87into the Tokyo fix, from an early low of 119.57, before steadying. The afternoon saw little action and the pair hovered at 119.75 levels. Although some stops are mixed in just ahead, offers moved up from around 120.00 levels. On the downside, trader stops are seen sub-119.50, 119.25 (119.29 the post-Fed spike low) and 119.00.

EUR/USD slid downwards in the Asian trading from 1.0968 to 1.0905. Large, bln in 1.0950 option expirations were unable to support. However, more expiries at 1.0900 helped to limit the further downward move. Markit releases string of data today. A marginal further improvement is expected in the euro area PMIs today. The headline composite index has drifted up from November's local low of 51.1 to 53.3 last month and we look for an incremental gain to 53.7 in March - that would be consistent with a GDP growth signal in the region of the Q1/15 forecast of 0.4% q/q. But it is hard for EUR to benefit from stronger data when the ECB is committed to easing.

GBP/USD dropped to 1.4920 from 1.4975 on slight volume and in line with EUR/USD. UK's consumer and producer price inflation data in focus today. Despite a much more modest reduction in petrol prices in Feb, versus the sharp falls in Dec/Jan, the February inflation will likely hit 0.0%y/y (cons 0.1%). The UK election is also starting to attract more attention - it is a core part of our bearish GBP view but one which we think is not yet fully priced by the market.

AUD/USD opened at 0.7878 in the Asian session and traded in 0.7851-0.7905 range preceding China's PMI data. A quick move above 0.7900 levels found decent profit taking. Softer PMI figures dragged the pair down to 0.7835 in a jiffy. It bounced back to around 0.7860 levels later but buyers were scant. Offers now seem to be waiting above 0.7900.

NZD/USD closed at 0.7654 in New York. It re-tested the 0.7675 high overnight in early Asia but the move was rejected and the pair fell back to 0.7629 post-soft China PMI data. Support is located ahead of 0.7600.