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Video for December 1st, 2008 (4 min): Weak Manufacturing Data Boosts Risk Aversion and Yen

AUS Manufacturing PMI Slides to Record Low, Profits Cool in 2rd Quarter

In Australia, the manufacturing PMI fell for a sixth month in a row in November, as the index dropped 7.7 points to 32.7. It's a fresh new low for the series. The global economy continues to sputter, driving down consumer and business confidence, which is being reflected by weaker demand for manufacturing. This is a theme seen throughout the major economies in November. In a second release, company profit growth slowed in the 3rd quarter. Profits were up 5.2% compared to the 15.7% seen in the 2^nd quarter.

AUS TDMI Inflation Gauge Falls by 0.6% in November

Meanwhile, a measure of inflation was down 0.6% in November, easing the pressure on policy members that meet later tonight to decide on interest rates. Expectations are for a 75 basis point reduction to 4.50% from 5.25%.

AUD/JPY - Aussie Slides on Risk Aversion, Falls in Global Stocks

 

The Aussie-Yen pair fell in overnight trading, testing support around the 60 level after a more than 200 pip slide. From there the pair consolidated. Stocks in Sydney and Tokyo were down around 1.5%, while European and US stocks saw deeper declines. That attributed to an increase in risk aversion and gains by the Yen and US Dollar.

EUR Manufacturing PMI Hits Record Low, Worse Than Preliminary Report

The final version of manufacturing PMI was revised down from the preliminary version of 36.2 to a series-low of 35.6. In October, the PMI was 41.1. It's the 6th straight month of contraction, as all the survey's indexes declined to record lows. Euro-zone manufacturing is suffering as both export and domestic demand has collapsed in the face of the growing impact of the financial crisis on the real economy. The ECB will be forced to respond to the weakening state of the economy by accelerating its pace of interest rate cuts. The central bank meets on Thursday where it is expected to lower rates by 50 basis points.

EUR/JPY - Euro Stocks Slide, Pressuring Euro vs Yen

 

The Euro-Yen plunged 370 pips during today's session, falling from 121.40 to 117.70. Key indexes in Europe were off more than 5% as the weak manufacturing data surprised forecasts on the downside and joined news from the UK, China and Russia also showing record-pace contractions in manufacturing activity the last month. The Euro was already falling to end last week, and its next key level of support is at the 116.50 level.

UK Manufacturing Sector Worse Than Expected

In the UK, the manufacturing PMI slid to 34.4 in November, a bigger than expected contraction and a record low for the 16-year old series. The weak results hurt UK stocks, pressured the Pound, and increased speculation that the Bank of England will act even more aggressively in its interest rate meeting on Thursday.

UK Mortgage Approvals At Record Low, Mortgage Lending Weak

Total net lending to individuals increased by £1.3 billion in October compared to September. That was a sharp drop from September's figure as mortgage lending fell to a meager £500 million. The number of loans approved for house purchases slipped to 32K, a fresh all time low.

GBP/JPY - Pound Falls 800 Pips to Yen as Traders Price in Larger Rate Cuts

 

With poor UK releases from the manufacturing and housing sector, and risk aversion dominating overnight and NY trading, the Pound plunged more than 800 pips vs. the Yen, wiping away the rally that started on November 21^st.

GBP/USD - Pound Slides 580 Pips vs Dollar

 

The Pound-US Dollar pair started the week at the 1.54 level, broke support at 1.5250, and fell to new support at 1.48, a total change of 580 pips. Traders are betting on a more aggressive rate cut by the Bank of England.

EUR/GBP - Euro Surges 270 Pips on Pound Weakness

 

The Euro-Pound saw a large move as well, surging 270 pips from its open near 0.8240. That up-move wipes away about 4 sessions of gains for the Pound, and the pair is now back to its levels seen to start last week. Traders are most likely expecting bolder action from the Bank of England than they are from the ECB this week.

US ISM Manufacturing Index Sees Sharpest Contraction in 26 Years

In the US, the manufacturing sector contracted in November at the fastest pace in 26 years, adding to the woes facing the US economy. The financial crisis has seeped into main street as retail sales fall and household spending is being curtailed in the face of weakening economic activity. In response to weaker sales and demand, companies are cutting production. The news will add pressure on policy member at the Fed to continue lowering rates and on the government to pass some kind of package to stimulate the economy. 

USD/JPY - Dollar Slides to Yen as US Stocks Open to 5% Drop

 

The Dow Jones Index opened to a 450 drop, continuing the sell-off seen in Europe. The Nasdaq and S&P indexes, and oil, were off about 6% as of 3 PM EST. The Dollar-Yen pair fell 220 pips as investor sentiments soured, before finding support at the 93 level. That's the lowest the pair has been since October 28^th.

Tonight's and Overnight Releases

Tonight, as we mentioned before the RBA will decide on interest rates, so watch for a bigger than expected cut. Also, Australia will post its retail sales and current account. Overnight, Switzerland releases consumer prices, the Euro-zone will release producer prices, and the UK will post construction PMI. There are no major releases scheduled for tomorrow NY session.