Aussie Slammed By Dalian Coal Embargo, While Firmer Flash PMI Does Euro Little Good

Overview: The US dollar is firm against most major and emerging market currencies. There is more optimism on US-Chinese trade as a series of understandings are drafted, and an extension past March 1 of the tariff freeze is reportedly in the works. Mixed economic data and a call from a local bank for two rate cuts this year did not have as much impact on the Australian dollar as reports suggesting that Dalian, where 2% of Australia coal goes, has blocked imports to which is seen as a protest to Australia's ban of Huawei,  It is the weakest currency today, off more than 0.75%, straddling $0.7100 after hovering around $0.7200. A little improvement in the flash eurozone PMI failed to push the euro out of its recent narrow trading ranges. Some positive Brexit sentiment appears to be creeping in and helping stabilize sterling as the market absorbed Fitch's decision to put the country's AA rating on negative watch. Global equities are narrowing mixed. In Asia, China and Korea traded off, while most of the other market edged higher. In Europe, the Dow Jones Stoxx 600 is little changed in the morning and continued to flirt with the 200-day moving average. Soft data in Asia saw Japanese and Australian yields slip, and while peripheral European yields followed, core yields are one-two basis points firmer. Iron ore and gold prices are softer. Oil prices are little changed, putting at risk the six-day advance.  

Asia Pacific

Australia is very much in focus today. The flash PMI was poor. The manufacturing PMI eased to 53.1 from 53.9, but the real shock was the dramatic weakness in the service PMI, which is often seen as more a reflection of the domestic economy that trade. It fell to 49.3 from 51.0. This report was followed by favorable jobs data. The economy grew more than twice as many jobs as expected (almost 40k). Of these, more than 65k were full-time jobs, the most since June 2017. The participation rate ticked up but the unemployment rate was steady at 5.0%. The Australian dollar came under pressure when a local bank forecast two rate hikes this year.  However, the Aussie recovered fully but then was hit anew on reports that one port (Dalian) has banned Australian coal. The full details are not known or if this is a wider action.  

Japan's PMI disappointed. The flash manufacturing PMI fell to 48.5 from 50.3. It is the second sharp drop after finishing last year at 53.6. It is the first contraction (sub-50) reading in 2.5 years. Both new orders and backlog fell. The All-Industries Index, which is seen as a rough proxy for GDP fell 0.4% in December (twice the decline that was expected) after a 0.5% decline in November.  

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Read more by Marc on his site Marc to Market.

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