Manufacturing activity slowed in Japan in September according to the flash reading. The Markit/JMMA manufacturing PMI fell to 50.9 in September from 51.7 previously. This was below forecasts of 51.2. The index held above 50, which indicates expansion, but more worrying was a sharp fall in new export orders, which contracted at the fastest pace in 2½ years.
Tokyo shares closed over 2% lower on Thursday as markets reopened after a three-day national holiday and Japanese auto stocks were dragged lower by the Volkswagen scandal. Equities in China were around 0.5% higher after yesterday’s sharp falls.
In the currency markets, the yen strengthened slightly against major currencies after the PMI data as it pointed to continued expansion of the sector. The dollar saw limited reaction to a speech by Atlanta Fed President Dennis Lockhart on Wednesday, who emphasized the strength of the US economy. Lockhart also sought to downplay the slowdown in China, saying that “the world is overacting”.
The dollar was off yesterday’s highs against the yen, when it touched 120.54 yen and was struggling to hold above the 120 handle on Thursday, trading just above it in late Asian session.
The euro meanwhile was lifted by comments from ECB President Mario Draghi, who on Wednesday said that more time is needed to assess the downside impact to Eurozone growth and inflation from the recent developments in China. This removed the likelihood of any immediate expansion of the ECB’s quantitative easing program, boosting the single currency in the near term.
The euro extended yesterday’s gain to rise to 1.1206 dollars in late Asian trading. It also rose sharply against the yen and the pound and was last trading at 134.43 yen and 0.7341 pounds respectively.
The Australian dollar fell to a two-week low against the greenback as it extended its losses after Wednesday’s weak manufacturing PMI from China. The aussie was lower at 0.6977 against the dollar in late Asian session. The Canadian dollar was also weaker as it was hit by a combination of weak retail sales and a larger-than-expected rise in US gasoline inventories which weighed on crude oil prices. The greenback was up at 1.3323 against the loonie, while WTI crude futures bounced back 0.5% to rise to $44.72 in late Asian trading.
Coming up later in the day, German IFO figures for September will be the main data coming out of the Eurozone. In US session, durable goods orders and new home sales for the US will be closely watched, in addition to the weekly initial jobless claims.