The health of global manufacturing remained a key point of contention for markets overnight with PMI releases from both Europe and the United States signaling diminished demand. The latest round of PMI data from Markit Economics showed German manufacturing contracted at the fastest pace in 3-years. German PMI fell to an index level of 45 in June from a previous 45.2, slightly higher than the previously estimated 44.7. Unsurprisingly Euro-Zone Manufacturing PMI also remained firmly in contraction territory, while the latest official unemployment data showed a new Euro-era high of 11.1 percent in May from a previous 11 percent. Across the Atlantic, the closely watched ISM manufacturing index undershot estimates with the gauge retreating to 49.7 from a previous 53.5. Economists expected a moderate decline to 52. A separate report from Markit Economics showed manufacturing PMI slipped lower to 52.5 in June against the preliminary read of 52.9.
U.S stocks failed to maintain the positive lead set by European markets, with the DOW finishing slightly lower while the S&P500 managed to squeeze out minor gains by the close. The slow-down in U.S manufacturing is supportive of the view the Federal Reserve will need to embark on further easing measures which appeared to have kept markets from deeper losses. On balance, we’ve seen some encouraging moves across the risk spectrum but the euphoria displayed after the EU summit has now subsided with market participants back to the reality of interpreting the latest economic data points.
After peaking at highs just shy of US$1.27-figure in the wake of the EU Summit, the Euro has maintained a controlled decline with the pair displaying supportive behavior around overnight lows of US$1.2567. Meanwhile, the shared currency continues to be outpaced by its risk counterparts with the Aussie, Kiwi, CAD and Sterling leading the charge higher. The Australian dollar remained supported with price action moving to 2-month highs of 102.78 US cents.
Locally, the focus will now turn to the RBA policy meeting with the outcome released at 1430 AEST. The release of June’s policy meeting minutes showed Stevens and Co remain cautious given the negative shock-waves resonating from abroad, in particular Europe. Nevertheless, after a 50bps cut to the official cash rate in May, the minutes showed the board’s decision to slice a further 25bps was “finely balanced” given little in the way of new information suggesting significant weakening locally, while also taking into account the need assess previous policy adjustments. This suggests the RBA will hold a steady course this Tuesday as they understand the effects of previous easing, in addition to tentative signs of stability from the Euro region.