Financial markets were affected by Eurozone's PMI data as the US was Labor Day holiday on Monday. The bloc's PMI slipped to 45.1 in August, down from flash estimate of 45.3 but higher than July's 44.0. Italy's PMI slumped to the 10-month low of 43.6. The set of data indicated that manufacturing activities of the 17-nation region stayed in contractionary territory and further stimulus is required to boost growth. Meanwhile, Moody's downgrade of the EU's outlook to negative from stable also spurred expectations that the ECB would soon announce new program to contain economic weakness. The commodity sector was strengthened by heightened hopes of central bank easing. Both crude benchmarks gained with the WTI and Brent contracts rose +0.60% and +1.06% respectively while gold approached 1700 amid speculations of unconventional monetary easing.
Moody announced it has cut the outlook of EU's AAA bonds to negative from stable, citing the change "reflects the negative outlook on the AAA ratings of the member states with large contributions to the EU budget". According to Moody's, "the creditworthiness of these member states is highly correlated, as they are all exposed, albeit to varying degrees, to the euro-area debt crisis". Meanwhile, there was more news about the ECB's reactivation of easing. According to ECB President Draghi, the central bank would consider buying sovereign bonds for up to 3 years to lower borrowing costs of debt-ridden nations.
As widely expected, the RBA announced to leave the cash rate unchanged at 3.5% in September. According to the accompanying statement, policymakers believed that, "with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate". While further rate cut is not urgent in Australia, the central bank would like deliver more easing later in the year as global economic turmoil is expected to affect the wellbeing of Australia.
In China, the People's Bank of China injected money to the market as rent data showed economic moderation continued. The central bank conducted RMB 55B of 7-day reverse repo at 3.4%, same as the rate used in the August 30 operation. On the dataflow today, the US ISM manufacturing probably climbed higher to 50 in August from 49.8. Construction spending might have risen +0.4% m/m in July, gaining the same as the prior month.
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