Weak Chinese PMI Sends Equity, Currency and Commodity Traders Running

Once again Chinese PMI data disappointed the markets and sent currencies and commodities searching for bottoms. Commodities from copper to crude oil tumbled. The Australian and New Zealand dollar broke support levels and the Japanese yen weakened. Asian equity markets are all trading in the red as the new month starts. US equity markets closed on a negative note after the US wage growth data came in lower, and oil prices continued to fall. Asian markets are trading on a negative note tracking the fall in the US markets and weak PMI data from China and Japan. PMI reports for Australia, Japan, the euro area and the U.S. are also due later today.

China’s manufacturing sector contracted further to a two-year low in July, due to renewed falls in total new work and new export orders. PMI dropped to 47.8 in July from 49.4 in June. The latest data is below the flash score of 48.2 and signaled the sharpest deterioration in the health of the sector since July 2013.The latest reading was below neutral 50.0 mark for the fifth straight month. A reading below 50 indicates contraction in the activity.

New business received by Chinese manufacturers fell in July at the fastest rate since March 2014. New export work declined in July as domestic and foreign demand has softened, after rising slightly in June. Production dropped for the third straight month in July due to weaker market conditions and a downturn in client demand, and the sharpest contraction seen in 44 months. Purchasing activity fell in July due to fewer new orders and the rate of fall was the sharpest seen since January 2012.

 

Japan’s Topix declined 0.3 percent, while the Kospi gauge in Seoul dropped 0.9 percent. The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong slid 1.4 percent, heading for its lowest close in eight months. Taiwan’s Taiex index slumped 1.9 percent. The Shanghai Composite headed for its lowest level since July 8. The gauge sank 14 percent last month as traders cut leveraged bets amid concern valuations were unsustainable.

The US dollar moved into the green in the Asian session to trade at 97.36 as the Aussie fell to trade below the 0.73 level before recovering to 0.7303 while the kiwi gave up 5 points to 0.6586. The dollar was slightly higher against the yen and the euro during Asia trade Monday, with a lack of fresh trading cues leaving investors with little reason to make any major moves. The US dollar edged up early in the session to Y124.12, regaining some of the ground lost Friday after disappointing U.S. employment-cost data cast doubt on a September rate increase by the Federal Reserve. The USDJPY is trading at 124.02 while against the euro the yen is bringing 136.16. Hopes remain high among investors that potentially upbeat labor data could help the dollar break above resistance around the so-called “Kuroda line” of Y124.60, the dollar level before the Bank of Japan Gov. Haruhiko Kuroda made comments about the yen in June. The Bank of Japan will be meeting at the end of the week and Kuroda has already signaled that he will not be making any changes to the program at this time.