Risk off amid softer PMI data

The dollar was significantly firmer across the board as markets became more risk averse following weaker PMI data in China and Europe. The China May flash manufacturing PMI fell to 51.1 from the prior 51.8 in April. While a reading above 50 continues to indicate expansion, concern that the pace of growth is softening weighed on sentiment. Asian equities were much lower with the Shanghai Composite down -2.93%, its largest drop since January.

In Europe, flash PMI figures were also released and disappointed traders. The EU’s largest economy, Germany saw a sharp drop in its May flash manufacturing and services PMI. The manufacturing PMI was anticipated to fall to 61.0, however the reading came in at 58.2 from the prior 62.0. The market was forecasting a rise in services PMI to 57.0, but it unexpectedly declined to 54.9 from the previous 56.8. The data was consistent with a drop in Euro-zone May flash PMI’s which also fell by more than forecast with the manufacturing PMI dropping to 54.8 from last month’s 58.0 (cons. 57.5) and services PMI falling to 55.4 from the prior 56.7 (cons. 56.5). The data suggests a slowing of growth in the Euro-zone, which in addition to the ongoing sovereign debt concerns and political risk surrounding the Spain elections weighed on the common currency. Greek 10-year bond yields rose about 43 bps to record highs of nearly 17% and EUR/USD fell to test its 100-day SMA at around 1.3965/70 and currently trades around 1.4025.

It is a light data in terms on economic data for the NY session with only the Chicago Fed National Activity Index due out at 0830ET.

Source: Forex.com

23.05.2011