Intraday Market Thoughts

Growth Weighs on Appetite After FOMC & Disappointing China PMI

by Kyle Morrison
Jun 23, 2011 7:30

Greek cabinet passes austerity budget, Euro awaits flash PMI data after disappointing Chinese PMI, US dollar firms up after FOMC and Sterling pressured near key supports as rate rise expectations recede.

For once markets could well be dominated by factors other then Greece over the next couple of days after the Greek cabinet yesterday passed the new austerity budget in preparation for putting before parliament next Tuesday.

Overnight we saw that Chinese HSBC flash PMI slid back coming in at 50.1, still in expansion territory, but down from Mays 51.1, raising fears of slowing growth in one of the biggest drivers of emerging market demand and growth in the global economy. In Europe this morning we should see if flash June PMI data in Germany and the Euro zone is also showing similar signs of stress, with expectations of a slow down in both manufacturing and services in both regions, with reductions across the board from the May figures. German manufacturing PMI, traditionally one of the more robust measures is expected to slip back to 57, from 57.7, while the euro zone equivalent is expected to slide from 54.6 to 53.8.

Fed Chairman Bernanke expressed concerns about the slow down in the US economy with the Fed following in the footsteps of the IMF earlier this month and downgrading its growth forecasts from a range of 3.1-3.3% to 2.75%-2.9%. The Fed also upgraded its core PCE inflation forecast from 1.3%-1.6% to 1.5%-1.8% and making the likelihood of the possibility of further stimulus measures of QE3 less likely in the short term. The Fed did say that it would keep the stimulus at current levels while it kept a watching brief over the economy with Fridays final revision of Q1 GDP a key indicator.

GBP remains on the downfoot over the past 24 hours as it nears a number of key supports against the US dollar. The unexpectedly dovish minutes really shouldnt have come as too much of a surprise, given Andrew Sentences recent departure, however Fishers comments earlier this week might be warranted if downside risks materialised spooked the markets and pushed out estimates of the next rise in interest rates into next year.

US jobless claims are due out later this afternoon and will have particular resonance given the Feds action last night in pushing up its unemployment rate estimate from 8.4% to 8.6% to 8.6% to 8.9%.

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