Throughout this week China has been a talking point for markets, acting as a cooling breeze on risk trades. Initially, it was reports from BHP of the prospect of softening iron ore demand, but it remains in focus thanks to the softening of the latest PMI data overnight, showing the manufacturing series down to 48.1, from 49.6. A China slowdown has been the dog that has not barked for some years now and China played a pivotal role in supporting the global economy through the 2008-09 slow-down. But this time the need for a rebalancing is widely acknowledged, by the Chinese leaders themselves. The key question is whether this can be achieved in an orderly manner. It's not until the readings on Q1 output are available that the market will take a more pronounced view on this. For now, FX is taking a more cautious approach, with the Aussie in particular proving vulnerable this week to the prospect of weaker demand from China.
- The UK's fiscal slippage
- The decline of the yen
- Aussie under pressure once again