PMI data to watch as central bank decisions loom

Asian shares see gains ahead of central bank decisions; PMI releases in focus.

By Ahmed Azzam | @3zzamous | 24 July 2023

  • Major currency pairs remain range-bound, awaiting PMI data releases for potential volatility

  • Yen strengthens after last week's dip on speculation of BOJ's stance

  • Japan's PMI Manufacturing slips to 49.4, with a resurgence in price pressures

  • Manufacturing PMI data in France, Germany, EU, UK, and USA may indicate another shrinking trend

Asian equities displayed resilience in early trading as investors awaited crucial monetary policy decisions from the region's central banks. Notwithstanding China's marginal retreat, market sentiment remained bullish, bolstered by optimistic expectations of further stimulus measures. The US futures market presented a mixed outlook, while European contracts experienced a modest dip. Simultaneously, the Japanese yen witnessed a bounce-back following last week's 2% slide on speculations surrounding the Bank of Japan's (BOJ) monetary stance. Treasuries and Brent crude oil prices encountered downward pressure, in line with the prevailing cautiousness.

In the currency arena, major pairs and crosses displayed a cautious stance, firmly bound within the ranges established on Friday. Market participants keenly observed the impending Purchasing Managers' Index (PMI) data releases from both the Eurozone and the UK, anticipating potential market fluctuations in response. However, the primary focus of traders revolved around the imminent high-profile events: the Federal Open Market Committee (FOMC) and European Central Bank (ECB) interest rate decisions scheduled for later in the week.

Japan's PMI manufacturing misses forecast, price pressures resurge

Japan's manufacturing sector witnessed a slight downturn, with the PMI Manufacturing index slipping to 49.4 in July, falling short of the forecasted 50.1 and declining from the June figure of 49.8. Despite this dip, there was a minor uptick in PMI Manufacturing Output, climbing to 48.4 from 48.1. Additionally, the PMI Services reading also experienced a slight decline, edging down from 54.0 to 53.9. The Composite PMI, which provides insight into the overall health of the Japanese economy, remained unchanged at 52.1.

The private sector firms in Japan have been consistently displaying growth for seven consecutive months. This growth can largely be attributed to steady improvements among service providers, while manufacturers reported a softer downturn as the third quarter began. Nonetheless, demand among private sector firms was less robust compared to the previous survey period. The latest data indicates only a marginal increase in new orders, signaling a possible slowdown in demand.

New Zealand's goods exports edge up, imports take a tumble

In June 2023, New Zealand experienced a slight uptick in goods exports, rising 1.3% year-on-year, totaling NZD 6.3 billion. Conversely, the country witnessed a significant drop in goods imports, declining by 14.0% year-on-year, amounting to NZD 6.3 billion. Consequently, the monthly trade balance revealed a surplus of NZD 9 million, notably below market expectations of NZD 235 million.

Manufacturing PMI: Another contraction in the cards?

Market participants have their eyes firmly set on the upcoming PMI data releases from prominent economies such as France, Germany, the EU, the UK, and the USA. Forecasts suggest that the manufacturing PMI figures may indicate further contraction across all readings, prompting investors to brace themselves for potential market ramifications.