Wed, Oct 05, 2022 @ 14:43 GMT
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Chinese Economic Data Support European Markets | Eurozone Inflation And French Labour Reforms Under Focus

The Chinese manufacturing PMI reading (51.7) came ahead of the market forecast (51.3)
The dot plots are telling us a very different picture in comparison to the Fed fund rate.
The ECB’s last piece of the puzzle is keeping them on a leash from triggering the tapering process

European markets and US futures are trading higher due to the more optimistic reading of the Chinese economic data. We have additional encouraging signs for the economy and it established that the economic growth is picking up steam. The Chinese manufacturing PMI reading (51.7) came ahead of the market forecast (51.3). This indicates a more cheerful picture for the People Bank of China which is more inclined to curb its process of loose monetary policy. More healthy economic readings like this increase the odds that the PBoC would be more likely to achieve a new phase for its economy which is moderate growth. However, some are still hesitant about the recovery due to the lack of evidence in structural changes.

Having said that, we do anticipate the overall market reaction to remain reticent ahead of the key economic number, the US NFP data due tomorrow. The dot plots are telling us a very different picture in comparison to the Fed fund rate. Looking at the recent odds for another rate hike for this year, it douses any hopes for the dollar bulls because inflation data is in no rush to rear its head. Hurricane Harvey is going to create a major dent for the upcoming quarterly GDP readings. Similarly, the labour market would also feel the impact and an uptick in the unemployment claims isn’t going to push the Fed closer to their targets.

When it comes to the Euro, there are two events where you want to keep your focus on. Yesterday we had the robust inflation number for Germany and today it is the Eurozone’s inflation data. The ECB’s last piece of the puzzle which is keeping them on a leash from triggering the tapering process. The expectations are that the number may have ticked up to 1.5% which would be a sturdy reading relative to the previous number of 1.3%. The ECB only needs to see this number keep improving, at least for now.

The other event has more of a historical importance in a sense that it would try to shake the foundation of the labour market in France. Emmanuel Macron, the French president has a vision for France and labour reforms are the very pillars which would support that. The country’s Prime Minister is going to lay out a plan under which employers would have the bargaining power to not only negotiate the hours but also the pay. If successfully implemented, President Macron will be remembered in the history because in the past three decades many have talked about that, but no actions had followed. Edouard Philippe, the prime minister of the country, will be delivering his speech today and the markets will be watching the reaction very closely.

The dollar weakness means one thing, your decade’s long relationship between metals and the dollar has come back to life. There is no doubt that the dollar index has shown some phenomenal upward moves from its recent low and yesterday it also gained a lot of strength from the revised US Q2 GDP number. After all, a bigger denominator number (the dollar) creates pressure for the metals. However, the long term trend for the dollar is skewed to the downside and this is behind the copper and aluminium strength. Because the economic growth under its own merit does not have the ability to push the metals to their current level. This is the key thing which is taking place in the metal market.

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