The week has got off to a slightly negative start on Monday as some less than pleasing PMI readings from the eurozone and China adds to global growth concerns in 2015.
The latest official manufacturing PMI reading from China narrowly avoided falling into contraction territory for the first time since September 2012, falling to 50.3 from 50.8 and below expectations of 50.6. It was an even closer call for the HSBC reading, which fell to 50 from 50.4, right on the boundary that separates growth from contraction.
The decline in the readings may have been felt more had it not been for the interest rate cut from the People’s Bank of China a couple of weeks ago which should hopefully reverse some of the decline in the months ahead. The PBOC is also expected to announce further easing measures early next year, which may be providing further support to markets that remain addicted to central bank stimulus.
It’s a similar scenario in the eurozone where confidence is continuing to plummet, even in the regions strongest economy - Germany – where the manufacturing PMI reading for November fell back into contraction territory only two months after clawing its way back above 50. As in China, the focus at the moment is on the central bank and what it can do to support growth and slow the decline in inflation, with the eurozone lying dangerously close to deflation territory.
The ECB has already announced a large batch of measures in an attempt to stop the decline but they don’t appear to be working. Following Draghi’s comments a couple of weeks ago when he claimed the ECB must do more, the latest policy decision on Thursday should be extremely interesting, with some suggesting that the ECB may be ready to unleash the QE bazooka.
The latest ECB decision is just one of many major events to come this week, with the Bank of England also announcing its latest policy decision on Thursday, the US jobs report being released on Friday and a large number of other significant economic releases scheduled throughout the week. Add to this the Autumn forecast statement in the UK and we have a very interesting week in store.
One major event that is already behind us is the Swiss vote on Gold holdings over the weekend. Had they voted in favour of increasing Gold holdings to 20% from the current 7.5% level, it could have had a significant impact on a number of markets, particularly Gold and the Swiss Franc. The EURCHF pair will have been one of the more interesting due to the Swiss National Bank’s pledge to implement a floor on the pair at 1.20, a level it is currently trading very close to and that the SNB may have found it very hard to protect had the initiative been passed.
However, there was an overwhelming majority against increasing Gold holdings in the end, which prompted initial buying in the EURCHF pair and selling in Gold but both have reversed much of the moves already.
In the US today, the November manufacturing PMI readings from Markit and ISM are scheduled for release. It’s worth noting that the Markit PMI is a revised reading while the ISM PMI is an initial reading so it tends to have a greater market impact. The official reading is expected to rise slightly to 55, while the ISM number is expected to fall to 58, which is still comfortably in growth territory and very encouraging as we head into 2015.
The S&P 500 is expected to open 5 points higher, the Dow 30 27 points higher and the NASDAQ Composite 3 points higher.
DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.