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The Euro-Zone PMI manufacturing index declined marginally to 48.4 from the flash reading of 48.5 and recorded a 27-month low with the sector confirmed in contraction. The Italian and Spanish readings were both in contraction territory below 50.0, although the Italian reading beat market expectations. There was a stronger downturn in new orders for the month while supply-side pressures eased, but there were stronger increases in costs and prices on the month.

The US ISM manufacturing index retreated to 50.9 for September from 52.8 in August which was below consensus forecasts of 52.2 and the weakest reading since May 2020. New orders dipped back into contraction territory, also recording the weakest reading since May 2020 while there was a marginal advance in production. The employment index also indicated a decline on the month while the prices index retreated to 51.7 from 52.5 and the lowest reading since June 2020.

The weaker than expected US data and evidence of an easing in inflation pressure triggered a dip in US yields and the dollar also posted significant net losses. The Euro struggled to make much headway, but did move back above the 0.9800 level while there were stronger gains in commodity currencies as stronger equities curbed defensive dollar support. Risk appetite held firm on Tuesday with the Euro strengthening further to 10-day highs around 0.9860.




US Treasuries edged higher into Monday’s New York open with the yields drifting lower. There was a more substantial move after the US ISM data with the 10-year yield sliding to near 3.60%. After peaking around 145.20, the dollar retreated to below 144.50, although stronger equities curbed potential yen support.

Richmond Fed President Barkin stated that he didn’t want to rule out disinflationary forces, but also noted that the pandemic may have increased inflation pressures while may made no comments on short-term monetary policy developments.

New York Fed President Williams stated that the policy was still not restrictive for growth and that there are still more rate hikes ahead. He added that the Fed is cooling inflation, but underlying pressures are still strong. Overall risk appetite held firm despite the hawkish Fed rhetoric.

Japan’s Tokyo inflation rate increased to 2.8% for September and the highest rate since 1992. There was no sign of a pivot from the Bank of Japan and Asian equities posted net gains. The dollar traded around 144.80 despite a retreat in US bond yields with Chinese markets remaining on holiday which curbed activity.




The September UK PMI manufacturing index declined marginally to 48.4 from the flash reading from 48.5, although this was slightly stronger than the August reading. There were stronger increases in costs and prices for the month while supply-side difficulties increased slightly on the month.  

The data had little impact with markets monitoring UK political developments and global risk conditions very closely.

Gilts rallied after the U-turn on the top rate of tax with the 10-year yield trading below 4.00% while global yields also declined which stabilised risk appetite.

Sterling struggled to hold the initial advance, especially as the Bank of England bought very few bonds in the latest operation to buy bonds. Gilts rallied again after the UK data and Sterling gained fresh support as risk appetite strengthened sharply with equities making robust gains and Sterling rallied to 1.1300 against the dollar.

There were still important reservations surrounding UK economic policy with ratings agency S&P stating that the government U-turn did not affect the ratings warning.

Following Chancellor Kwarteng’s speech there were reports that the fiscal statement will be brought forward to late October which helped underpin Sterling.

Strong gains in equities were crucial in underpinning the UK currency as it traded above 1.1300 against the dollar while the Euro dipped further to lows below 0.8650.

Bank of England MPC member Mann stated that she voted for a 75 basis-point rate hike in September due to concerns over Sterling, inflation expectations and the energy price cap. Sterling traded around 1.1330 against the dollar on Tuesday as risk appetite held firm with the Euro correcting to around 0.8680.




Swiss consumer prices declined 0.2% for September compared with expectations of a 0.2% increase on the month with the annual rate declining to 3.3% from 3.5% and compared with expectations of 3.5%. The Swiss PMI manufacturing index increased to 57.1 from 56.4 the previous month.

The weaker than expected inflation data dampened increased speculation that the National Bank might not have to increase interest rates further and the franc lost ground. The Euro strengthened to 0.9730 while the dollar posted a net advance to just above 0.9900 and the US currency traded around 0.9915 on Tuesday.


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