Summary
- US ISM slows to a 3-year low, NFP in line with estimates
- Downturn in Europe deepens
- GDP recovery in South Korea temporary
US – Fed delivers first rate cut in over a decade
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Create account Try a demo Download mobile app Download mobile appThe Federal Reserve delivered the first rate cut in over a decade on Wednesday. Stocks took a hit and USD strengthened as Powell failed to succumb to Trump’s calls for deeper cuts. Nevertheless, market currently sees another rate cut in September as a done deal. The US data released this week may have supported this outlook as it can be seen as slightly negative. Namely, the US ISM manufacturing index dipped to a 3-year low of 51.2 pts on Thursday but the NFP report for July came in line with estimates. However, it should be noted that the labour market report showed quite a significant downward revision for June. As there are few key reports from the US scheduled for release in the nearby future, Fed speakers may be the best “macro guide” for the US dollar now.
USD continued to strengthen against the euro this week being supported by the FOMC meeting and lack of major improvement in the European data. So far, recovery we have been observing since yesterday was not enough to collapse clear downtrend structure. Source: xStation5
Europe – troubles spread to peripheries
The core EMU data has actually been slightly upbeat this week with inflation in Germany and France and Q2 GDP in Italy modestly higher than expected. However, it seems that manufacturing slump is spreading out to EMU peripheries. PMIs declined in Norway and Poland and literally slumped in Czechia (very well integrated with the EMU) suggesting a broader reach of manufacturing slowdown. UK’s PMI was unchanged at a low level of 48 but the pound tumbled on the fear of Hard Brexit, a perspective that will dumped business sentiment across the continent even more.
The German and French price growth figures slightly improved compared to preliminary releases. Nevertheless, price growth in the euro area remains lacklustre and has been slowing for a few months already. Source: Macrobond, XTB Research
Asia – more trade frictions
Purely based on the data this week was weak but not a disaster. Both Chinese manufacturing PMIs improved, albeit remained below the 50pts. mark (just barely). PMIs from Australia and India were better too while Japan and South Korea disappointed. So based just on that one would say it’s a stabilization on low levels. However, fresh trade frictions are bound to make things worse. Not only new tariffs on China will slow this economy but increasing frictions between Japan and South Korea take place at the very heart of the manufacturing slowdown.
The South Korean major index (KOSP200) extended downward move this week revisited support zone ranging around the 260 pts handle. Further escalation of the Japan-Korea trade spat could risk the index breaking lower and painting fresh multi-month lows. Source: xStation5
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