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USD/JPY Slides on Weak Durable Goods but Bounces on PMI Data

USD/JPY Slides on Weak Durable Goods but Bounces on PMI Data

Thomas Westwater, Analyst

US Durable Goods Orders & Markit PMI Data - Talking Points:

  • US durable goods orders dropped 1.1% to $248.2 billion for September
  • USDJPY received a positive jolt after an overall healthy US Markit PMI report
  • Market participants eye consumer data tomorrow and look forward to the week ahead for US GDP data and a FOMC rate decision

US Durable Goods Orders dropped 1.1% for September to $248.2 billion, missing expectations of -0.7%. Shipments dropped 0.4% to $252.5 billion and capital goods orders excluding aircrafts, a substitute for business investment dropped 0.5%. The previous month reading was revised down from -0.4% to -0.6%. Also released this morning was Markit’s PMI report on the US manufacturing and services sectors, which printed readings of 51.5 and 51.0 respectively. Spot USD/JPY prices remain bogged down following the release of these closely watched economic indicators, though recovered marginally after the Markit PMI print following the forex market’s initial reaction to disappointing US durable goods data earlier.

USDJPY (1-Min Chart)

USDJPY Chart

With durable goods orders having a sizable impact on US GDP, with Q2’s reading comprising 0.86% of the total 2.1% growth, todays miss stands to drag on growth for Q3 GDP. The positive Markit Manufacturing print this morning is better than expected, although it may not be enough to help concerns surrounding a manufacturing slowdown. Yet commentary on the labor market found within the report painted a picture that appears less sanguine than the headline figure. However, lack of degradation across the services sector, which is a much larger portion of the US economy relative to manufacturing, is a positive. Market participants will likely turn to the ISM’s Manufacturing PMI report next, which is due on November 1st to gain further insight on the US economy.

US Durable Goods vs Markit PMI

Economic slowdown and recession fears may accelerate after this morning durable goods release. Both the IMF and OECD global growth forecasts downgraded global GDP growth estimates in recent months amid lingering US-China trade war uncertainty. While signs of trouble have begun emerging through weak economic data in the US beginning earlier this year, following suit of the slowdown across the Eurozone and China, market participants stay keenly focused on geo-political issues such as Brexit and the US-China trade wars seeing that a resolution to these risks could avert some drag on the global economy.

Global Economic Policy Uncertainty Index

With that being said, monetary policy across the globe has shifted to a more accommodative stance over the past year with the ECB leading the charge in easing and the Fed already cutting two times this year. A third interest rate cut is largely expected at next week’s FOMC meeting as evidenced by the latest overnight swaps pricing a 91.7% chance for a cut at next week’s FOMC meeting.

FED Swap Pricing

Markets now await consumer sentiment data from the University of Michigan due Friday morning ahead of the weekend where traders will likely prepare for next week’s jam-packed economic calendar, which will provide updates on Q3 GDP readings for the US and Eurozone as well as Chinese industrial production for October. Also, the previously mentioned FOMC rate decision is on deck in addition to US PCE inflation data.

Economic Calendar

--Written by Thomas Westwater, Intern Analyst for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

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