Poor EMU PMI Compounds ECB's Challenge

Overview: The eurozone's preliminary composite PMI for January fell to its lowest level since July 2013. It reinforces expectations for a dovish Draghi press conference and saw the euro unwind yesterday's gains. The US dollar is firmer against all the major currencies. Asian stocks gained, and the MSCI Asia Pacific Index snapped a two-day fall with the help of chipmakers, as SK Hynix boosted its dividend, Lam announced a share buyback program, and Xilinx forecast stronger sales. European bourses are also moving higher, trying to end a three-day drop, helped by information technology and financials.  European benchmark 10-year yields are lower led by a three-four basis point decline in the periphery and one-two basis points in the core. US bonds and equities are slightly firmer.  

Asia Pacific

Japan's flash manufacturing PMI fell to 50.0 from 52.6. It is the lowest reading since at least August 2016. The silver lining to the disappointing news is that it appeared to bolster demand at the 20-bond auction, which saw the bid-cover jump to 4.57x, the most since last summer. After contracting in Q3 18, mostly due to disruptions caused by natural disasters, the recovery in Q4 seemed lackluster, and 2019 is off to a soft start.  

After hiking rates last November, Korea's central bank left rates on hold (1.75%), but trimmed this year's growth forecast (2.6% vs. 2.7%) and cut the CPI forecast to 1.4% from 1.7%. The central bank seemed to signal a reluctance to reduce rates, implying perhaps a reliance on fiscal policy.  

Australia reported it grew 21.6k jobs in December, a bit more than expected and the unemployment rate ticked back down to 5.0%. However, this is where the good news ends.  Full-time jobs fell by 3k after a 7k fall in November. This is the first back-to-back decline in August-September 2016. The participation rate slipped to 65.6% from 65.7%. The CBA manufacturing PMI rose (54.3 vs. 54.0), but the services fell (51.0 vs. 52.7). The composite dropped to 51.5 (from 52.9), which is the lowest since at 2.5 years.  On top of this, one of Australia's largest banks raised the variable mortgage rate (~12-16 bp), matching what the other major banks did at the end of Q3 18. 

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Read more by Marc on his site Marc to Market.

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