Daily Market Pulse

Manufacturing PMI releases should draw market attention


Against a basket of major currencies, the dollar was up 0.16% on Monday. Policymakers gather as authorities evaluate the approval of two vaccines, developed by Pfizer and Moderna for distribution, while at the same time surging virus cases have put the brakes on the U.S. economic recovery. Today’s calendar is filled with news from Capitol Hill, where Federal Reserve Chair Powell and Treasury Secretary Mnuchin will be testifying to the Senate Banking Committee. Given the recent disagreement between the two over Fed’s emergency lending programs, the hearing should draw some attention. Yet, the manufacturing PMI release is expected to point to the manufacturing sector continuing to expand at a steady clip.


After touching its 12-week high, the EUR pulled back to end 0.36% down against the USD on Monday. Poland and Hungary are still blocking the $2.2 trillion spending package after reiterating on Monday they will not agree to tie up disbursements from the bloc’s budget and virus-recovery fund to upholding the rule of law. France said that unless they drop their veto in the next two days, it could lead to a severe and potentially existential disruption to the 27-nation bloc still coping with Brexit. Turning to data, November’s flash inflation figures are due from the eurozone, set to show a fourth straight decline in CPI. Moreover, ECB President Lagarde speaks this evening.


The GBP started the week with losses (-0.08%) amid a hectic trading session given that month-end flows increased volatility, but the Pound ended up in November almost 3% higher against the USD. Ambiguous Brexit reports come from pretty much everywhere, however, the situation appears to be on track to avoid the worst-case “hard Brexit” scenario. The Bank of England data showed net consumer lending fell by $786 million in October, with much of it due to the repayment of credit card debt, suggesting many are bracing themselves for further economic uncertainty. The Manufacturing PMI release is awaited later today and should carry some weight with it.


The Japanese yen slid 0.17% to a week low on Monday while equities rose with a broadly upbeat mood. The pair USD/JPY remains beholden to its descending channel following pandemic-induced volatility in March. Earlier this morning, the Ministry of Finance data showed Japanese firms’ capital expenditure fell 10.6% in July-September from the same period in the year before, following a decline of 11.3% in the previous quarter. Weakening capital spending is likely to worry the government, keeping policymakers under pressure to deploy a large stimulus to respond to the pandemic.


The Loonie kicked off the week with small losses against the USD. The CAD closed 0.12% down after OPEC+ reportedly delaying its meeting to December, 3rd (Thursday), given the need for more time for talks. If OPEC+ announces at least a three-month roll-over of output cuts, this should keep oil prices relatively well supported and in turn assist CAD. If the cartel disappoints and oil slumps, this should add pressure on the Loonie. Fresh GDP data prints come out of the Central Bank of Canada later today, and the update may provide important support to the currency as the Canadian economy is expected to avoid a technical recession. The growth rate is expected to increase by 47.6% in the third quarter of 2020 after contracting 38.7% during the previous period.


The MXN fell 0.62% against the USD on Monday after official data reported that the public debt represents 52.2% of GDP in October, more than 7% higher than the same period in 2019. Nonetheless, the Mexican peso ended November around 5% higher than the previous month, mostly influenced by gains in oil prices on expectations of recovering demand after the rollout of a vaccine. The MXN also saw support from a higher U.S/Mexico interest rate differential, which favored Mexico to be an appealing destination for foreign investment, driving the demand up for the MXN. Market participants are waiting for Manufacturing PMI later today, which is expected to confirm the Mexican economic recovery in November.


The Chinese yuan closed almost unchanged (-0.03%) against its counterpart USD on Monday after decade-high factory activity growth figures underscored China’s remarkable recovery. In November 2020, NBS China's Manufacturing Purchasing Managers Index (PMI) was 52.1%, up by 0.7% from last month, which was above the threshold for nine consecutive months, indicating that the recovery growth of the manufacturing industry has accelerated. Thus, the CNY was set for a gain of 1.72% against the U.S dollar in November for the sixth month in a row – its longest appreciation streak in six years. Until November, the Chinese yuan rose 5.7% and has been the best performer among the 11 most highly traded Asian currencies. The appreciation is the result of Beijing’s determination to boost the yuan’s international demand, as well as the upbeat market mood with the incoming administration of US president-elect Joe Biden.


The Brazilian real edged 0.22% up against the BRL on Monday. With this result, the BRL strengthened more than 7% in November, its best month since 2018. Brazilian stock index, Ibovespa, recorded its best month in four years with a more than 16% gain. According to the Central Bank of Brazil, the public sector account posted a surplus in October, after eight months in a row of showing a deficit. Conversely, in the wake of increased government spending to deal with the new Covid-19 pandemic, the central bank also published the Debt-to-GDP for October, which came in 90.7% and is higher than the 90.5% in September. The data raised concerns over sustainable government spending due to the pandemic. Today, investors will keep an eye on the Markit Manufacturing PMI, which is expected to show further expansion. 


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