Talking Points

Yen Soars on Risk Aversion, Aussie Gains on Chinese PMI Data Overnight
British Pound May Decline as Soft PMI Print Informs BOE Policy Outlook
US Dollar May Decline if ISM Gauge Drop Revives QE Taper Delay Hopes

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The Japanese Yen outperformed in overnight trade, rising as much as 0.6 percent on average against its top counterparts, as risk appetite soured and drove demand for the safe-haven currency. Asian stocks followed Wall Street lower for a second day as investors continued to digest Wednesday’s FOMC policy meeting. The central bank disappointed the markets’ hopes for a meaningful dovish shift in official rhetoric (as expected), weighing on sentiment across financial markets.

The Australian Dollar likewise advanced after October’s Chinese Manufacturing PMI figures that topped economists’ expectations. Supportive results emerged from both official and HSBC versions of the metric, pointing to a pickup in the factory sector. That bodes well for Australia’s commodity exporters, underpinning the outlook for economic growth and limiting scope for the RBA to resume cutting interest rates. Investors are pricing in a meager 4 percent probability of a reduction in the benchmark lending rate at next week’s policy meeting, according to data from Credit Suisse.

The UK Manufacturing PMI report is in focus on the European economic data front. Expectations call for the index to edge lower for a second consecutive month, sliding to the weakest since July at 56.4. UK economic data has increasingly underperformed relative to expectations over recent months (according to data from Citigroup), opening the door for a downside surprise. This may weigh on the British Pound as traders adjust BOE policy expectations to reflect a longer period in accommodative territory.

Later in the day, the spotlight returns to Fed QE “taper” speculation anew as October’s ISM Manufacturing gauge crosses the wires. Median forecasts suggest factory-sector activity slowed, with the index dropping for the first time since May to print at a five-month low of 55.0. A soft outcome is likely to rekindle hopes for a delay in the FOMC’s move to scale back stimulus, boosting risk appetite and weighing on the US Dollar. Needless to say, an upside surprise stands to yield the opposite result.

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