Asian Equities See Red, with Private Sector PMIs and Central Bank Commentary to Drive the EUR and USD

Earlier in the Day:

There were no material stats out of Asia through the session earlier today, leaving the markets with little to consider other than the fall in U.S equities on Thursday, which came despite better than expected weekly initial jobless claims and Philly FED manufacturing PMI figures for September.

Wednesday’s Dollar rally, following the FED’s outlook on monetary policy, continued to move in reverse through the session, with the Dollar Spot Index hitting an intraday low 91.996, as appetite for the EUR returned, the markets expecting the ECB to begin unveiling its plans for next year at any time.

The risk off sentiment through the Asian session was not just down to the pause in the U.S however, with news of North Korea issuing the threat of nuclear tests on an unprecedented scale in the Pacific Ocean weighing on market risk appetite, which pulled the Dollar back 0.47% against the Yen to ¥111.95 at the time of writing.

It’s another North Korean threat ahead of the weekend and the markets have a tendency to avoid wanting to be exposed going into the weekends of late, particularly if there is a new threat from the North Koreans. The risk aversion and appetite for the Yen saw the Nikkei take a hit, while the decision by S&P to downgrade China on Thursday, weighed on the CSI300 and Hang Seng through the session, the markets being given a stark reminder of how serious China’s ballooning debt crisis is to the world’s 2^nd largest economy and the global economy as a whole.

For the Kiwi Dollar it’s Election Weekend and, despite Tuesday’s poll pointing to a National Party victory, the two main polls in New Zealand have cast uncertainty over the outcome this weekend, with very different forecasts. Colmar Brunton’s poll had Labour 4 points ahead on 44%, while Tuesday’s Reid Research poll had the National Party 10 points ahead on 47%, which had stirred a Kiwi Dollar rally on release of the poll result.

At the time of writing, the Kiwi Dollar was down 0.30% at $0.7285, with direction over the near-term now hinged on who comes out on top this weekend.

The Day Ahead:

It’s a particularly busy day on the economic calendar for the day ahead, with key stats out of the Eurozone including September prelim private sector PMI numbers, ahead of ECB President Draghi’s scheduled speeches this morning.

The markets will be looking for the Eurozone economy to have continued momentum at the end of the 3^rd quarter, with Germany manufacturing and Eurozone composite numbers of particular importance this morning. Forecasts are relatively mixed on today’s stats, though general market sentiment towards the EUR has improved since Wednesday’s FOMC meeting and the continued projection of a final rate hike before the end of the year.

Adding to some of the negative sentiment towards the Dollar in the early part of the day is the renewed threat from North Korea, which has contributed to the EUR’s gains in the early part of the day, the EUR up 0.19% at $1.1964 at the time of the report.

Positive stats, a hawkish Draghi and continued risk aversion over North Korea through the European and U.S sessions, could see the EUR return to $1.20 levels, though Draghi will need to play his part, with the markets now searching for clues on how the ECB will move forward into next year on its asset purchasing program.

While the EUR sits in positive territory at the time of writing, it is Election Weekend in Germany, though the markets continue to price in a certain Merkel victory, limiting Election fever to the minimum.

From the UK, stats are limited to September’s CBI Industrial Trend Order figures, which will provide some direction for the Pound, despite the data being considered overoptimistic from an outlook perspective, with focus then shifting across the Pond. While the stats are on the lighter side, the UK Prime Minister is also scheduled this afternoon, the markets expecting the British PM to provide an update on where Brexit negotiations stand, ahead of the next round of Brexit negotiations scheduled to start on Monday. While we can expect the Pound to move during May’s speech, how the EU responds will also be of significance ahead of the close.

Stats out of the U.S this afternoon include September’s prelim private sector PMI numbers and, while service sector figures will be key, the markets will be expecting the manufacturing sector to also deliver, following Thursday’s Philly FED Manufacturing PMI figure.

FOMC members Williams, George and Kaplan are also scheduled to speak through the day, though for the markets to pay any particular attention, with the FOMC economic projections having only been released on Wednesday, there will need to be something unsettling in the comments to add to the Dollar’s woes going into the weekend.

At the time of the report, the Dollar Spot Index was down 0.31% at 91.975, sitting just off an intraday low 91.966, with the Dollar not just in the hands of today’s stats and FOMC member commentary, but also any noise from Capitol Hill, the U.S administration certainly capable of responding aggressively to the latest North Korean threat.