The Chinese PMI data released today reflected the malaise state of economic activity, with the manufacturing data remaining in contractionary territory whilst the non-manufacturing number came in a few steps lower compared to the prior reading.
If we go looking for some crumbs of comfort, the Manufacturing PMI did narrowly beat both expectations and the previous result, but all told the data was not overly inspiring.
The PMI numbers are consistent with a Chinese economy that remains in a slumber; however, the muted market reaction suggests that traders are pinning their hopes on some meaningful stimulus being unleashed by Beijing sooner rather than later.
Asian equity markets were mostly upbeat to start the week following the positive Wall Street lead from Friday. The Nikkei was strongly higher, fuelled by gains in financial stocks as investors still try to interpret the message emanating from the BOJ regarding adjustments to the YCC.
The wording from the BOJ wasn’t exactly that clear so I am not sure how much we can read into what this change may or may not signify. However, by making a slight alteration to the JGB’s target range, the BOJ are perhaps testing the waters with a view to transitioning to a tighter monetary policy environment.
Though this transition is likely to take place via baby steps rather than via giant leaps.
The ASX200 was in a cautious mood to start the week ahead of the RBA decision on Tuesday. Again, the result of this week’s rate decision looks to be a toss-up as strong arguments can be made for both hiking and pausing. But last week’s notably softer CPI print I think slightly tips the balance towards a pause on Tuesday from the RBA.
The trending lower of inflation indicates that the impacts of previous rate hikes are slowly but surely working their way through the economy.
However, the RBA are wary of the persistent tightness of the jobs market which remains a source of inflationary pressure and it is this labour market stoutness which is keeping an August rate hike possibility alive.
Oil was largely unperturbed by the Chinese PMI data today with prices continuing to however around the current elevated levels.
Over the last week, we have heard some positive rhetoric from the execs of the big oil companies (such as Shell, Exxon Mobil) regarding the demand outlook and this in conjunction with the supply side constraints as orchestrated by OPEC+ has created a conducive environment for price gains.
The gold price has been flailing a little while the USD remains surefooted. Last week’s US GDP upside surprise is still fresh in the mind of currency traders and as such the greenback has been able to consolidate recent gains.
The DXY is sitting at 101.75, not too far below last week’s peak around the 102 level. This USD resilience is making gains for the gold price somewhat of a struggle at the moment.
The precious metal has encountered some resistance in the US$1960-1965 region which for the time being is capping the upside until such time as we see a retreat from the greenback.
Market commentary from Tim Waterer, chief market analyst at KCM Trade
