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 In data likely to dishearten European policymakers, euro zone
business activity expanded at a slightly weaker pace than expected
this month, with firms also cutting prices for a 30th month in a row
to drum up business.
The manufacturing PMI for Germany, Europe's largest economy, slumped
to 50.3, its lowest reading since June 2013 and below all forecasts
in a Reuters poll of 32 economists, while a services industry PMI
for France, the bloc's second-biggest economy, faltered after just
two months in growth territory.
Stock markets in London <.FTSE>, Frankfurt <.DAXI> and Paris <.FCHI>
fell 1, 0.8 and 1.3 percent respectively as new tax pressures also
hit pharmaceutical and UK tobacco firms. Vienna <.ATX> slumped 2
percent as Raiffeisen Bank <RBIV.VI> warned it was likely to see its
first ever annual loss due to problems in Ukraine and Hungary.
"Although there was some relief that the French PMI number wasn't
worse, the fact that activity in Germany is only just expanding must
be a worry," said Gavin Friend, a strategist at National Australia
Bank.
In China the news had been slightly better. HSBC's flash survey on
manufacturing (PMI) rose to 50.5, from 50.2 in August, confounding
forecasts for a dip to 50.0. <ECONCN>
The mixed data - comforting from China, less so in Europe - and the
start of U.S.-led air strikes on Islamic State strongholds in Syria
gave a fillip to safe-haven U.S. and German government bonds, while
the high-flying dollar edged lower against its currency basket.
Economists had been braced for something worse from Beijing
following the recent run of soft data from the world's number two
economy and the relief also helped offset nerves over the fresh bout
of political tensions in the Middle East.
Chinese stocks <.CSI300> bounced 0.7 percent to lead Asia
<.MIAPJ0000PUS> marginally higher. The Australian dollar <AUD=> also
hopped up. The Asian giant is Australia's single biggest export
market and investors often use the currency as a liquid proxy for
China plays.
Annette Beacher, head of Asia-Pacific research at TD Securities,
noted the flash PMIs had averaged 50.9 for the third quarter, a
pickup over the previous quarter's 49.6.
"After the dismal industrial production print for August, financial
markets were increasingly of the view that China is slowing at a
more rapid pace than desired, so today’s print provides a welcome
offset," said Beacher.
Australia's main index <.AXJO> swung smartly higher to be up 1
percent, while MSCI's broadest index of Asia-Pacific shares outside
Japan <.MIAPJ0000PUS> gained 0.2 percent. Japanese markets were shut
for a holiday.
Wall Street's took a tumble overnight. A 0.8 percent drop for the
S&P 500 <.SPX> was the biggest one-day decline since early August
and was caused in part by a soft reading on U.S. existing home
sales. Early futures prices also pointed to another 0.2 percent dip
later.
DOLLAR RESTS
U.S. Treasuries and other global bond markets were also still
benefitting from comments from New York Federal Reserve bank
president William Dudley on Monday that there was still excessive
slack in the U.S. economy so any increase in interest rates should
be done cautiously.
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Yields on 10-year Treasury notes dipped to 2.56 percent, from 2.59
percent late Friday, while German Bunds and other core euro zone
bond yields were barely budged just above their recent lows.
Dudley also said the steady rise in the dollar could complicate the
Fed's job, potentially hurting U.S. economic performance and pushing
down inflation.
The currency has been on a hot streak recently thanks to the
diverging outlook for U.S. rates and those in Europe and Japan,
where policy is set to remain super-easy and might even be loosened
further.
Measured against a basket of currencies the dollar had climbed for
10 straight weeks, the longest run since the index was created in
1971. The index traded at 84.521, having peaked at 84.861 on Monday.
The dollar was also taking a breather against the yen at 108.74
after peaking at a six-year high of 109.46 last week. The euro was
hanging on at $1.2862 having hit a new 14-month low at $1.2814 the
previous day.
The Australian dollar recouped just a little of its recent losses on
the China survey and nudged up to $0.8913. Likewise, copper and gold
inched higher, the latter having touched its lowest since January at
$1,208.36 on Monday.
Brent crude oil for November delivery bounced 20 cents to
$97.17 a barrel, having fallen sharply overnight to be uncomfortably
close to its recent trough of $96.21. U.S. crude rose 15 cents to
$91.01 a barrel.
Ample supply and slowing economic growth in Europe and China had
been outweighing expectations of a cut in oil output from the
Organization of the Petroleum Exporting Countries (OPEC).
"The market was really oversold earlier and there was not much room
for prices to go further down," said Avtar Sandu, senior manager for
commodities at Phillip Futures, after the Chinese data.
(Editing by John Stonestreet)
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