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The US dollar is broadly higher, despite the somewhat dovish FOMC statement and better than expected European purchasing managers surveys. Global equity and bond markets are mostly higher. The highlight of the day still lies ahead, but there are 6 developments to note prior to the outcome of the BOE and ECB meetings.

1. Australia's PMI fell sharply to 42.0 from 49.6. It has not been below the 50 boom/bust level for 25 months. Australian equities advanced slightly (0.2%), but were held back by a 0.8% fall in financials amid talk of a deposit levy and an increase in compulsory retirement saving, which may compete with banks for household savings/deposits. A rate cut next week is now as fully discounted as these things get and our expectation of another cut in Q4 is gradually becoming a more common view. The decline in import prices (-0.3% Q2 vs expectations for a 2.0% increase) should further drive home the point that the decline in the Australian dollar is not fueling inflation.

2. China's official manufacturing PMI rose to 50.3 from 50.1 in June. The HSBC confirmed its flash reading of 47.7, down from 48.2. The divergence, while common, is the largest in over a year. While the HSBC measure is more weighted to small business and exporters, the official measure small business sub-index rose to 49.4 from 48.9. We suspect that one of the factors that account for the discrepancy is the HSBC one was conducted earlier and the liquidity squeeze in June weighed on sentiment more. Meanwhile the easing of money market rates, via a CNY34 bln 14-day reverse repo and the official PMI measure helped extend the local stock market advance for the third consecutive session.

3. The euro area PMI rose to 50.3 from the 50.1 flash reading. It is the 4th consecutive increase and is now the highest since mid-2011. The highlights include a stronger German reading (50.7 vs 50.3 flash) and a surprising gain in Italy above 50 (50.4 from 49.1 in June), helped by rising output, new orders and exports. The Dutch also surprised with a rise above 50 (50.8 vs 48.8), Spain disappointed by slipping to 49.8 from 50.0 and France slipped to 49.7 from 49.8 in the flash reading. Markit sticks with its assessment that the data is consistent with a 0.1% expansion in Q3 GDP. The euro is trading almost a cent lower than its post-FOMC peak, though within yesterday's range. Given the risk of dovish comments from Draghi and expectations for another solid, even if not spectacular jobs report tomorrow, we favor a further push lower in the euro initial support is seen in the $1.3200-10 area, where a break would encourage a test on last week's lows near $1.3135.

4. The UK CIPS rose to 54.6 form 52.9. New orders, exports and employment showed healthy gains. Sterling rose almost a cent on the news, though it remains around 2 cents below last Thursday's high. The $1.5250 area is seen as the near-term ceiling.

5. Japanese shares had their biggest rally in a month, with the Nikkei up 2.5%. It managed to enter, but not fill the gap left from Monday's sharply lower opening. That gap extends to 14114.5. Favorable earnings (e.g. Panasonic), a weaker yen and China's PMI contributed to the equity gains. Separately we note that Japanese investors purchased foreign bonds for the 4th consecutive week (JPY233.2 bln vs JPY601.4 bln the prior week). Foreign investors sold a small amount of Japanese shares (JPY61.8 bln). The dollar is trading at new highs for the week and is approaching JPY99. Resistance is seen in the JPY99.40-60 area.

6. The FOMC statement that refrained from giving fresh hints about the reduction in long-term asset purchases and expressed more concern about low inflation, while characterizing US growth as modest rather than moderate, does not appear to have changed many minds about the likelihood of tapering in September. We do not think that the Fed has committed to a Sept. move, though the consensus still appears to think so. Today's data, weekly initial jobless claims, PMI/ISM are unlikely to be significant market movers, overshadowed by the BOE/ECB meetings and tomorrow's employment report. Auto sales, while not a market mover, are important as it along with housing is understood to be interest rate sensitive. A modest slowing from the 15.89 mln unit pace in June is expected.

Source: 6 Things To Know Before The BOE And ECB