Chinese PMI Sours the Market Mood

The release of Chinese PMI data further soured the mood ofthe market, with the unspectacular numbers reminding financial markets that astrong Chinese recovery remains a hope rather than a reality. Manufacturing PMIcame in on the wrong side of 50 again, indicating that conditions in the sectorremain sluggish and constrained. Meanwhile, non-manufacturing PMI was 54.5,down from the prior reading of 56.4. With the latest round of Chinese datacontinuing the disappointing trend, risk -assets were subjected to sellingpressure across financial markets.

The Australian Dollar lost hold of the US$0.65 handle on thesofter PMI prints from China. This was despite Australian CPI coming in on thehigh side. CPI year on year came in at 6.8%, verses 6.3% prior and 6.4%expected. This inflation gauge seems to justify the hawkish approach by the RBA,but the AUDUSD rate was unable to capitalise and was overwhelmed by sellingpressures on Chinese economic concerns. AUDUSD had been riding high in the past24 hours around 0.6545, however it has since slipped down to 0.6490 where itsits precariously close to a support level. On the topside, resistance awaitsat 0.6550.

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A drop in US treasury yields has finally taken some steamout of the US Dollar. The USD has been flying high this month, and a fall in USyields has given investors a reason to square off some positions. The two- andten-year notes both had yields fall by more than 10bp. Treasury yields arelooking somewhat erratic, with investors trying to decipher the potentialimpact of the Fiscal Responsibility Act on the market.

The gold price finally caught a break courtesy of thepullback in the USD. The price of the precious metal moved back above theUS$1950 level. The spot price was last seen trading at US$1957, in betweensupport at US$1940 and resistance at US$1970. Any further rally in the goldprice from here will depend on whether the USD pullback is just a blip, or thebeginning of a downtrend. US data this week in the form of non-farm payrollscould help to answer that question.

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Negative sentiment is hitting the oil price, with theChinese macro data today doing little to inspire confidence in the demand outlook.This latest slump in the oil price could raise the stakes when OPEC+ convenesin early June, as the argument for further production cuts could be morepersuasive among members if the oil price looks vulnerable to further declines.

Looking ahead, markets will be monitoring what happens inCongress when the debt ceiling deal goes to a vote. Meanwhile, upcoming jobopenings data in the US (JOLTS) could shape expectations ahead of the next Fedmeeting.

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