Daily Market Pulse

Soft PMI readings and lower yields diminish demand for dollars while U.S. Covid daily cases hit 135k


The recovering market sentiment was diminished following the Chinese state media branding the online gaming industry as “spiritual opium”, which triggered a sell-off of gaming studios around the world, affecting Asian and European stock markets amid fears that Beijing will crackdown on the gaming industry next. The U.S. dollar index, which tracks the performance of the greenback against a basket of six major currencies, retraced 0.09% amid investor cautiousness. The broader risk-off pushed up the demand for the US Treasuries which pushed yields lower to 1.20% where it currently stands. The lower U.S. Treasury Yields weighed on USD during yesterday's trading session while U.S. Covid cases continue to increase, reaching 135k daily cases. The Delta variant is spreading mostly amongst unvaccinated individuals which have incentivised hesitant people to get the jab. As Covid pressures keep mounting in the U.S. and vaccination pick-up the pace, the U.K. and Europe seem to have stabilized the surging cases, favouring foreign major currencies. However, investors remain cautious after the U.S. Manufacturing Purchasing Managers index failed to impress, releasing 59.5 vs 60.9 expected and 60.6 previously released, suggesting a slowdown in economic activity. Despite the soft figures, the Employment index posted 52.9 vs 49.9 previously released, hinting at a pick up in hiring while Prices Paid eased from 92.1 to 85.7, easing inflationary pressures. Nevertheless, market participants remain cautious, as job reports and Non-farm payrolls on Friday will provide a detailed assessment of the labour market.  


The common currency closed out the session 0.14% higher against the greenback amid a volatile session given the diminished mood in global markets. Covid daily cases remain around the 164k mark while Markit Manufacturing PMIs for July exceeded expectations releasing 62.8, although market participants expected 62.6. Recurring positive data suggests that fundamentals in Europe continue to improve while U.S. counterparts hint at a slowdown. Coming up, the Producer Price Index for July is expected to release a solid 10.3% year over year and 1.4% month over month. 


The Pound Sterling retraced 0.09% against the dollar amid investors caution and global uncertainty. The U.K. data remained on target during yesterday's trading session, with Market Manufacturing PMIs posting 60.4, hitting expectations. The positive data did not affect the valuation of cable and investors will remain rather cautious ahead of Thursday’s monetary policy meeting from the Bank of England. Additionally, Covid daily cases in the U.K. continue to fall, reporting 21k on the latest report, the lowest recorded in several weeks. Meantime, the EUR pauses legal action against the U.K. over the Northern Ireland Protocol and the proposal from David Frost to amend the agreement, which also built momentum for Sterling. 


The Japanese Yen rallied 0.23% amid China’s media spooking the gaming industry and mounting Covid cases in the U.S. The Japanese Yen appreciated from its safe-haven appeal as market participants reduced risk, following the behaviour from U.S. treasuries which dropped yields amid bolstering risk off demand. In addition to the soured market mood, strong Japanese data underpinned the appreciation of the Yen, with Consumer Confidence exceeding expectation at 37.5 vs 36 expected and the Tokyo Consumer Price index releasing 0.1% inflation, while market participants expected it to be unchanged. 


The Canadian Dollar edged 0.18% higher amid a volatile session driven by global uncertainty and poor PMI readings from leading economies. Additionally, the West Texas Intermediate (WTI) fell 3.44% during yesterday’s trading session amid Chinese and U.S. PMI Manufacturing readings, suggesting a slowdown in economic activity and Crude oil demand expectations. The Caixin Manufacturing PMI for July posted 50.3, just above the expansion/contraction mark of 50, vs 51 expected and 51.3 previously released. On the other hand, the U.S. ISM Manufacturing PMI missed expectation at 59.5 vs 60.4 previously anticipated and 60.6 released back in June. These were the weakest prints in the last 6 months. 


The Mexican Peso closed out the session 0.06% lower against the greenback amid broader global uncertainty and strong Gross Domestic Product figures for Mexico in the first half of the year. Soft PMI figures in the U.S. and China weighed on the expectation of demand for Crude oil, pulling back prices that removed support from the Mexican Peso. However, Mexican authorities released their latest GDP estimates announcing that the economy expanded by 7% in the first six months of the year, and by 19.7% in the second quarter. The growth performance confirms a trajectory of economic recovery after the economy contracted 8.2% last year as a result of the pandemic. 


The Chinese Yuan remained unchanged against the dollar amid disappointing PMI figures in both economies which have weighed on the broader risk-on sentiment and the price of commodities. The Caixin Manufacturing PMIs released 50.3 vs 51 expected and 51.3 previously released, suggesting that the economy has progressively slowed down during the summer. Economists suggest that the resurgence of the Delta variant globally affected the global demand but these complications should ease as caes stabilize in the U.K. and Europe. However, the recovery in China has proven to be patchy, with several setbacks from Covid surges and the current Delta variant posing significant risk at this stage, and it looks set to cause the biggest hit yet this year in China. Daily cases in China remain very low (200 daily cases) but given the infection rate of the variant, health authorities remain cautious as it could spread very quickly, compromising economic performance. 


The Brazilian Real remains relatively unchanged (+0.26%) amid market uncertainty regarding global recovery and Covid concerns. Moreover, Brazil’s national statistics institute announced that unemployment stood 14.6% in the March-May rolling quarter. The results suggest that the unemployed population has remained largely unchanged for the past quarters. A government spokeswoman said that when the pandemic hit, many people stopped looking for work and thus left the labour market, but as initial coronavirus restrictions were lifted and sectors reopened, the working-aged population began to search for work again, stabilizing the unemployment rate.


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