Intraday Market Thoughts

Central Bank Decisions Loom, China PMI Beats Estimates

by Adam Button
Jul 2, 2012 0:24

The focus shifts from European policy makers to central banks this week with decisions from the RBA, BOE and ECB. On the weekend, the Chinese PMI was slightly higher than estimates. Fridays CFTC data showed a renewed rise in EUR shorts but it was likely wiped out after the rally on Friday. Fraday's 150-pt rally in EURUSD puts back the stabilization track ...for now. Fridays latest Premium Insights are found here: Non subscribers can click here to join.

The surge in risk trades on Friday leads into a week of critical decisions from central banks and the US non-farm payrolls report.

The official Chinese PMI slipped to 50.2 from 50.4 but surpassed the 49.9 consensus. New orders and export orders declined. Chinese officials and press reports continue to hint at further stimulus via interest rate or reserve ratio cuts.

Merkel attempted to ratchet down speculation about easy money for bond buys from the bailout fund on Friday. She said countries will be required to meet existing EU recommendations for reforms. Merkel also said the size of the ESM would remain the same.

Late on Friday, US Congress approved rules that prevented an unwelcome rise in student loan rates in a transportation bill. In the UK, chatter is increasing about a referendum on its role in the EU.

Asian trading opens with the Q2 Japanese Tankan manufacturing sentiment survey. The 2350 GMT release is expected to remain at -4. The non-manufacturing index is forecast to improve to +7 from +5.

At 0030 GMT, the TD/MI measure of inflation expectations will be released. The prior reading was a benign +1.8%. A further decline could push the RBA toward lowering rates but a cut this week is highly unlikely as officials wait to assess the impact of recent cuts.

At 0230 GMT, the final HSBC China manufacturing PMI is due. The flash reading of 48.4 was below expectations and the final reading tends to slow further because of its bias toward more small businesses.



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