The USD rallies, oil prices slip, equity markets are down, and US yields rise after weak China & Eurozone data. The Euro sinks to three-month lows, while the safe-haven USD rallies and equity markets retreat after downbeat economic data from the eurozone area and China. China's services sector reported its slowest growth in 2023 in August, adding evidence the economic recovery continues to lose traction. In Europe, the composite PMI fell below expectations, posting its third straight month of contraction, increasing real concern that the Eurozone economy is sliding into recession. On a positive note, China's Country Garden Holdings Co. said it paid coupons on two dollar bonds within their grace periods. In focus this week, today US Factory orders. Wednesday EUR Retail Sales, US Services PMI, CAD BoC Interest Rate Decision, RBA's Lowe Speech. Thursday Eurozone GDP, BoC Monetary Policy Report Hearings, BoC's Governors Macklem Speech, JPY GDP. Friday German Inflation Report, CAD Net Change in Employment, CAD Unemployment Report, China Inflation Report.
In other news. The Global financial watchdog warns of 'further challenges and shocks' ahead - FT. North Korea's Kim plans to visit Putin in Russia to discuss arms sales, says US. China to launch new $40 bln state fund to boost chip industry, sources say. Ukrainian intercepts show Russian soldiers' anger at losses and disarray. Turkey's Erdogan says the Black Sea grain deal can be restored soon. Indonesia warns ASEAN on 'destructive' rivalry as Jakarta summit opens. SoftBank's reduced ARM price tag is still too high. Apple and Microsoft deny iMessage and Bing are 'gatekeepers' under new EU law.
In currency news. The USD index rallies on weak China & Eurozone data, while AUD, NZD & NOK tumble on the news. ZAR slips as ongoing power cuts are expected to impact Q2 GDP data. CNY weakens to 1-week lows down 0.5%, while Asian currencies fall 0.4% on average vs. USD. Trading comes under strong selling pressure with MXN & CHF dropping 0.4%, JPY down 0.5%, ZAR sliding 0.65%, SEK fell 0.8%, while NZD & NOK weakened 1.1% and AUD tumbled 1.4% vs. USD.
Oil prices fell after fresh data showed China's economy continues to struggle to grow as it drops to 8-month lows, while supply cuts by leading OPEC+ producers continue to provide underlying support to oil prices. CAD weakened in early trading after China's service sector reported its slowest growth in 2023 adding pressure to commodity-based currencies. CAD is outperforming its peers in early trading as Investors are expected to remain sidelined ahead of Wednesday's BoC interest rate decision. Analysts expect the BoC may pause interest rate hikes on Wednesday, with many expecting the BoC to wait until October to make its final rate increase in 2023.
EURCAD holds steady in early trading in a tight range as investors are sidelined ahead of the BoC interest rate decision on Wednesday.
EUR extends loses breaking through 1.0750 as the USD rises with yields. Disappointing HCOB Services & Composite PMI across European countries and the Eurozone coupled with weaker than expected Caixin services PMI out of China triggered a run to the safe-haven USD as investor sentiment waned on the increasing prospect of the Eurozone falling into recession. The expectation is growing that the Euro will continue to weaken back towards 6-month lows of 1.0680. Today the US July Factor Orders are likely to be somewhat ignored as investors await Eurozone Retail sales data on Wednesday.
GBPEUR holds relatively steady ahead of a busy week of economic releases and the BoE interest rate decision.
GBP bounces off 2-month lows in early trading, but remains under pressure as risk-off sentiment increases. The pound came under fresh selling pressure on disappointing domestic, European, and Chinese data. The pound tested a 2-month low of 1.2530 vs. USD but rebounds threw 1.2550 as investors anticipate the BoE will hike interest rates by 25bps at its Thursday's meeting. Domestically Retail Sales rose 4.1% in August, beating a 3-month average of 3.6%. On a negative note, Barclays reported that annual growth in consumer spending on credit & debit cards slowed to 2.8% in August down from 4% in July.
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