Economic data indicates a shaky European and UK economy this morning, triggering a selloff in certain currencies. Europe and the UK released their Purchasing Managers’ Index, which economists use to determine the likelihood of economic expansion, contraction and stagnation. The PMI data has underachieved for Europe over the past eight months, and today's data indicates a deteriorating economy.
French Services PMI fell to its lowest since February 2021, from 47.1 to 46.7. German Services PMI also fell to an 11-month low from the expansion zone to the economic contraction zone. The only positive financial data this morning from Europe was France’s Manufacturing PMI, which rose from 45.1 to 46.4. However, even with an improvement, the manufacturing PMI is still indicating a weakening in the sector. Furthermore, the UK’s Services and manufacturing PMI fell more than expected. Manufacturing PMI for the UK fell to its lowest level since May 2020. The Manufacturing PMI fell to 42.5, significantly lower than the 50.0 threshold, indicating economic stagnation.
As a result, the Euro and the Pound are experiencing significant declines, with no major retracements. Both currencies are declining against the market as a whole. Meanwhile, the US Dollar Index has risen from 103.41 to 103.92 by 0.35% since the day’s opening. However, the Japanese Yen is the best-performing currency, also known as a “safe haven currency”. The Yen is increasing in value against all currencies.
EUR/USD - Euro Dives on Gloomy Economic Data
The EUR/USD is declining by 0.53% since the announcement of Europe’s Services and Manufacturing PMI. The decline is due to investors now expecting the European Central Bank to avoid further restricting the European economy. To do so, economists are contemplating if the ECB will determine a “pause” as the best option for the remaining four months of 2023. If the ECB gives a dovish signal, such as a pause, the Euro will likely decline.
However, investors should note that the US is still yet to release their Purchasing Managers’ Index, which is scheduled for later this afternoon. If the PMI exceeds analysts’ expectations, the US Dollar will likely continue appreciating. Analysts expect the US Manufacturing PMI to remain at 49.0 or slightly decline to 48.9 and for services to fall from 52.3 to 52.1. If the PMI reads as expected or higher, it can give the currency the edge against the Euro. Robust PMI data paired with positive earnings data can continue to allow the Federal Open Market Committee to consider another 0.25% hike. Most economists believe the Fed will hike one more time in 2023, however, today’s PMI data can provide a further indication.
On the daily chart, the EUR/USD continues its downward correction, approaching the lower border of the ascending corridor. Technical indicators also maintain the previous sell signal with EMAs on the Alligator indicator trading below the signal line and the AO histogram forming downward bars. However, if the PMI data is harmful and the Dollar declines, sell signals may arise above 1.08547. Lastly, investors will also be monitoring speeches by the Federal Reserve over the next two days, including Chairmen Jerome Powell and FOMC Member Harker.
NASDAQ - Eyes on US PMI Data
The NASDAQ is declining as the US trading open edges closer, as are European equities coming towards the end of their session. The downward price movement can be considered an indication of low investor confidence and risk appetite. This can also be seen as safe haven currencies rising and the US Dollar. Analysts are also quick to point out that the price of Gold has held its value despite the Dollar significantly increasing. At the same time, the Dollar and Gold usually are inversely correlated. So, are investors fearing an economic downturn and opting to sell their shares?
As mentioned above, global economic data influences price movement. However, poorer economic data does also have the ability to signal a monetary policy pause or even a pivot. A pivot and a pause can support the stock market as long as investors still believe a recession will be avoided. NVIDIA’s quarterly earnings tonight will likely trigger volatility for the S&P 500 and NASDAQ. Higher than-expected earnings and revenue can support the NASDAQ’s price. However, for significant upward price movements, ideally, investors will want to see the US 10-Year Bond Yield decline back to 4.10% as a minimum.
Summary:
- Economic data indicates a shaky European and UK economy this morning, triggering a selloff in certain currencies.
- The Euro and the Pound are experiencing significant declines as PMI data disappoints in France, Germany and the UK.
- Global equities as the US session opens edging nearer due to potentially low investor confidence and risk appetite.
- Investors will scrutinize the US’s PMI, NVIDIA earnings data and the extremely high bond yields.
