By Lorcan Roche Kelly
It’s PMI day, China gets twin boost, and markets on liquidity watch. Here are some of the things people in markets are talking about today.
There’s more weakness in Europe’s manufacturing sector, according to Purchasing Managers Indexes. In Germany, the factory slump deepened again with output unexpectedly falling to 43.4 in December. A similar reading for France dropped to 50.3, well below forecasts. In the United Kingdom, industrial momentum tumbled to the lowest in more than seven years at 47.4. PMI data for the U.S. economy will be released at 9:45 a.m. Eastern Time this morning.
While the economic outlook for Europe may be under pressure, things are looking up for China. The indefinite suspension of fresh tariffs that were due to come into effect yesterday takes a major risk factor off the table for the world’s second-largest economy. It also seems that fears of a rapid slowdown of growth in China may have been overstated. Data overnight showed that both industrial output and retail sales in November were much stronger than expected.
Big day for repo
Today sees a repeat of the circumstances which many have blamed for the September repo blowout: a mid-month Treasury auction settlement and quarterly corporate tax payments. Since September’s events, the Federal Reserve has been busy providing liquidity to the market, and today is no different with a 32-day $50 billion offering as well as a $120 billion overnight operation. An oversubscription to the 32-day operation may signal continued strong demand for liquidity through year-end.
Equity markets are continuing to react to the agreement of a phase-one trade deal between the U.S. and China. Overnight, the MSCI Asia Pacific Index slipped less than 0.1% while Japan’s Topix index ended a quiet session 0.2% lower. In Europe, the Stoxx 600 Index was 1.0% higher by 5:50 a.m., with the gauge hitting another record high on gains for miners and banks. S&P 500 futures pointed to a gain at the open, the 10-year Treasury yield as at 1.842% and gold was slightly higher.
Empire manufacturing for December is published at 8:30 a.m. with PMI data at 9:45 a.m. The Treasury auctions $78 billion of T-bills at 11:30 a.m. TIC flow data is released at 4:00 p.m. while Minneapolis Fed President Neel Kashkari speaks this evening. Elsewhere in monetary land, the Bank of England publishes its latest financial stability report at 12:00 p.m., with Governor Mark Carney holding a press conference 30 minutes later.