JPY data soft
EUR PMI in-line but UK slips
USD ISM is make or break
Another night of heartbreak for yen longs hoping that the eco data will would provide them with support for a December rate hike from the BoJ, as almost all the numbers from employment to CPI to spending printed below forecast. While the jobless rate continued to remain near 8 year lows suggesting tight labor markets, the job to applicant ratio slipped at bit from 1.09 to 1.06 indicating that demand may have peaked. The troubling aspect of the Japanese data is that jobs are not translating into stronger consumer spending. With overall household spending still 2.4% less than a year ago and with CPI increasing a very modest 0.1% rate the BoJ finds little reason to raise rates just yet. PM Abe is scheduled to meet with Governor Fukui ahead of the BoJ policy meeting which starts on the 18th and given Mr. Abes preference for a dovish monetary policy, it appears that the consensus call for a January rather than a December hike is going to be correct. The only factor that could alter that scenario is a strong Tankan result on December 15th
Meanwhile both the euro and the pound enjoyed further gains in Asia and early Europe setting new yearly highs. Both units however came in for some profit taking as their PMI numbers printed worse than expected. In Europe, the culprit was Italy which has been a chronic laggard amongst the big three in the EZ region. In UK the news was decidedly worse as PMI slipped to 52.6 from 53.5 and both new orders and exports fell back. Despite BoEs nonchalance, pounds relentless drive towards the 2.0000 figure suggests only more problems and further slowdown for the countrys export sector. As weve pointed out UK data has been at odds with the pounds price action and at some point it will run into the wall of reality but for the time being cable remains king against both euro and greenback.
In US today the ISM number represents the last stand of the dollar bulls. Although manufacturing is not nearly as important as services to the US economy, if ISM prints below 50, talk of US recession will consume the FX market. If however it rises above forecast, it may provide some support for a retrace rally in the dollar that has been long overdue.
