Yen Dives On Risk Appetite, Sterling Boosted By PMI

The yen drops sharply as the week started as risk appetite was boosted by receding fear of a strike against Syria and Chinese manufacturing data. The Japanese currency was also weakened on speculation the there would be counteractions to the planned sales tax hike. Aussie and Kiwi are the biggest beneficiary of the risk rallies. Meanwhile Sterling also closely followed on better than expected manufacturing data. The risk of a military strike further receded as US president Obama decided to get congressional approval. The move is at least delayed and would even face the chance of disapproval from Congress. US markets are on holiday today and trade would be subdued entering into US session. Though, a number of important economic data will be released later in the week including ISM indices and NFP.

Japan's economy minister Amari said over the weekend that he's got majority of supports for the planned sales tax hike after having the seventh session with economists, business leaders and labor union representatives. However, the panel also urged the government to take "counteraction against the negative economic impact" if prime minister Abe does go for the tax hike. Japan could rise the 5% consumption to 8% in April 2014 and further to 10% in October 2015. And, such a tax hike would help maintain confidence in JGBs after Abe's fiscal and monetary stimulus.

China's official manufacturing PMI rose to 51 in August from 50.3 in July, hitting a 16 month high. The market had anticipated a milder improvement to 50.6. On the sub-indices, the "raw material inventory" and the "raw material prices" gained 2-points and 3.1-points respectively. These significant improvements signaled that inventory restocking is underway. Improvement in domestic and external demand was evidenced in the 1.8-point increase in new orders and the 1.2-point gain in new export orders. Business confidence also picked up during the month as the "the expectation of future production and business activities" increased by 3-points to 59.4 in August.

Released from Europe, UK PMI manufacturing index rose sharply to 57.2 in August versus expectation of 55. That's the fifth straight month of expansion and was the highest number since February 2011. Markit senior economist noted that the UK factories are "booming again" and GDP could easily grow more than 1% in Q3. Swiss SVME PMI dropped more than expected to 54.6 in August. Eurozone PMI manufacturing was revised slightly higher to 51.4 in August. Italian PMI manufacturing improved to 51.3 in August.

Also released today, New Zealand terms of trade index rose more than expected by 4.9% qoq in Q2. Australia building approvals rose more than expected by 10.8% mom in July. Japan capital spending was flat in Q2.

Latest CFTC data showed a further rise in euro net long on August 27 comparing to the prior week. Others were relatively unchanged. The euro's net positions improved for the seventh week to 40.1k net long. The yen net short rose slightly to -78.3k. Sterling net short dropped slightly to -38.2k. Australia net short rose slightly to -71.1k but stayed above 2013 high of -76.8l. The Canadian dollar net short rose strongly to -25.0k, from -9.5k.