The HSBC Chinese flash manufacturing PMI data for May is released tomorrow morning. The data is expected to show a slight improvement in the data from last month’s final reading of 48.1 to a flash (initial) estimate at 48.4. Any number below 50 shows a contraction in activity, but with the last few months all having been around the same level (in the low 48s), this could reflect the process of a bottoming out of the data.
The commodity currencies (especially the Aussie dollar) have a tendency to react to the key Chinese data and the forward looking PMIs are certainly in that bracket, as China consumes around 40% of global copper supply and Australia is one of the top six copper producers in the world. A positive flash PMI reading which shows signs of a decent pick up would have a positive read through to the Aussie dollar, and help to improve general forex risk appetite.
The Eurozone PMIs have taken on an increasing significance on Thursday after the disappointing Q1 GDP numbers released last week. Investors have pushed a flight into safe havens after the GDP data, with equity markets selling off, but it has been in the bond markets where the most profound move has been seen. The yields on French, and specifically Italian and Spanish debt have all shot higher as investors have looked to exit from their long positions on peripheral Eurozone debt.
This makes the forward looking PMIs very important now. Expectations are more that Germany is showing signs of stabilizing after the manufacturing PMI started to slide in early 2014. Also the German data has beaten expectations in 4 of the past 6 months, so optimism will be heightened. France is a different prospect though, spending only two months of the past two years in expansion territory (above 50). Possibly even more than Germany, it is important that France shows signs of progress, for the Eurozone recovery to start to gain proper traction. The data will also be given added spice because the ECB staff projections are updated in early June and Mario Draghi said in his latest ECB press conference, that the prospect of monetary easing by the ECB will be dependent on the staff projections. If the PMIs come in weaker on Thursday it will become even more likely that there will be some form of monetary easing. This would heap further pressure on Euro/Dollar which has come under the control of the bears since the ECB meeting.
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