Australian dollar still pressured as Europe crashes

DXY was up firmly last night as EUR and CNY sank:

The Australian dollar was mixed versus DMs:

Soft versus EMs:

Gold jumped:

Oil was firm:

Metals soft:

Miners weak:

Em stocks too:

Junk was OK:

Treasuries bid:

The bund curve crashed:

Aussie bonds were bid:

Stocks held on:

It was PMI night and the news was poor. Germany is plunging into recession as services chase collapsed industry:

▪ Flash Germany PMI Composite Output Index (1) at 49.1 (Aug: 51.7). 83-month low.
▪ Flash Germany Services PMI Activity Index(2) at 52.5 (Aug: 54.8). 9-month low.
▪ Flash Germany Manufacturing PMI(3) at 41.4 (Aug: 43.5). 123-month low.
▪ Flash Germany Manufacturing Output Index(4) at 42.7 (Aug: 45.8). 86-month low.

The German economy contracted in September, latest flash PMI data showed, as the downturn in manufacturing deepened and service sector growth lost momentum. Job creation meanwhile stalled as firms reported weakening demand and pessimism towards the outlook for activity.

The fall in output was accompanied by easing price pressures, with average charges for goods and services rising at the slowest rate for over three years.

The IHS Markit Flash Germany Composite Output Index – which is based on approximately 85% of usual monthly replies – registered 49.1 in September, down from 51.7 in August and its first reading below the 50 ‘no change’ threshold since April 2013. The rate of decline signalled was the steepest in almost seven years.

France is following:

Key findings:
▪ Flash France Composite Output Index(1) at 51.3 in September from 52.9 in August (4-month low)
▪ Flash France Services Activity Index(2) at 51.6 in September (53.4 in August), 4-month low
▪ Flash France Manufacturing Output Index(3) at 49.7 in September (50.7 in August), 2-month low
▪ Flash France Manufacturing PMI(4) at 50.3 in September (51.1 in August), 2-month low

At 51.3 in September, the IHS Markit Flash France Composite Output Index fell from 52.9 in August, and pointed to the softest expansion in private sector
activity for four months.

Moderate growth was underpinned by a rise of activity in the service sector. That said, the rate of growth recorded by service providers decelerated to the slowest since May and was only modest overall. Meanwhile, there was a return to contraction territory for manufacturers, although the latest reduction was only slight overall.

All of Europe is following:

Key findings:
▪ Flash Eurozone PMI Composite Output Index(1) at 50.4 (51.9 in August). 75-month low.
▪ Flash Eurozone Services PMI Activity Index(2) at 52.0 (53.5 in August). 8-month low.
▪ Flash Eurozone Manufacturing PMI Output Index(4) at 46.0 (47.9 in August). 81-month low.
▪ Flash Eurozone Manufacturing PMI(3) at 45.6 (47.0 in August). 83-month low.

The Eurozone economy came close to stalling at the end of the third quarter as demand for goods and services fell at the fastest rate in over six years. A deepening manufacturing recession, where output fell at the sharpest pace since 2012, was accompanied by a slower service sector expansion. Jobs growth and price pressures meanwhile waned and sentiment about the outlook remained among the lowest for seven years.

The IHS Markit Eurozone Composite PMI® fell to 50.4 in September according to the ‘flash’ estimate, down from 51.9 in August to signal the weakest expansion of output across manufacturing and services since June 2013. The slowdown was driven by new orders for goods and services falling for the first time since January, dropping at the sharpest rate since June 2013.

Running a continental scale mercantilist economic model in a time of trade wars is obviously not a very good idea. Currently the world has two of them, in China and the Europe, and they both are sinking together.

While they do, the Australian dollar can only fall as commodities come under pressure with weakening growth and the USD becomes the only bid in town.