With manufacturing data from China overnight showing the sector in the world’s second largest economy had its worst month since the global financial crisis back in 2008/09 another sell off is expected to ensue in the equity markets. Risk assets are being shunned by investors and this only adds to the conundrum over whether the Federal Reserve was right to keep rates on hold at their FOMC meeting last week. The dollar has recouped some of its losses from last week but it is hard to see the greenback gain much further ground in such an environment when anything that suggests China is slowing more rapidly is likely to delay the Fed’s decision even further. This could also serve to keep the euro supported which for the past few weeks has gained as a result of risk aversion amongst investors as carry trades are unwound.
The euro will be a focus this morning with the release of Eurozone PMI numbers which are expected to show both the services and manufacturing sectors remaining in expansion territory although a little slower than the previous month. Then later the Canadian dollar should be monitored for the release of retail sales expected to dip from 0.6% to 0.5% and after that there’s a release of US manufacturing data, also expected to soften a little from 53.0 to 52.8.
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