Risk Sentiment Worsens as CHN Markit Composite PMI Displays Contraction - 5.8.2013

Early on Monday’s opening currency markets participants appear less willing to take risk, with the USDJPY falling to 98.38 as traders prefer a safer currency. After Friday’s disappointing US NFP the greenback kept its downside bias, losing against its major counterparties with the US dollar index falling to 81.80 after drawing a resistance at 82.43. Moreover, the HSBC Market PMI Services for July stood at 51.3 the same like in June, indicating expansion in July since it is above 50, defying global concerns over Chinese weakening economic activity. However at Markit report Composite PMI signaled a contraction in July, also it is said that business decreased and the Services PMI remained unchanged due to profit margin squeeze, meaning prices dropped to support demand. The latter added pressure on risk appetite inducing further traders to abandon riskier assets, as a consequence NIKKEI 225 closed lower by 1.44%.

Elsewhere Australian Retail Sales disappointed displaying zero change in June while it was estimated to increase by 0.4%. In addition, Reserve Bank of Australia is deciding tomorrow about its monetary policy and is forecasted to hold its key interest rate at 2.75%, however for June Unemployment rate increased to 5.7% and CPI remained low at 0.5% while Housing sector showed weakness. RBA Governor the previous Tuesday said that investments in mining are going to fall meaning that its contribution to growth will drop and for that reason would like to see pick-up in other sectors like in business and housing sector which were weakening. Due to the latter there is some speculation for a rate cut to 2.5%. Earlier today the Aussie against the US dollar dipped to support at 0.8847 but now is bouncing up, currently at 0.8902. We highly anticipate RBA’s decision considering that is most likely to hold key rate unchanged however we are concerned about recent negative data and slight dovish comments by Glenn Stevens, RBA’s Governor.