Mondays are typically quiet when it comes to news releases. As a result of a lack of data out yesterday we had to go hunting for market moving news and we did not have to look too far. Chinese PMI or Purchasing Manufacturing Index had a reading of 50.8, with analysts expecting a reading of 49.7. PMI is an indicator of the economic health of the manufacturing sector and contains five major indicators,new orders , inventory levels, production , supplier deliveries, and employment.
A PMI reading of more than 50 shows an expansion in the manufacturing sector and a reading of less than 50 shows a contraction. So with a reading of 50.8 it shows that the fear of a severe slowdown in Chinese manufacturing is not really materialising.
The Australian Dollar was the standout performer as a result of this better than expected reading with a 70 pip rally or a little over ¾ of 1% gain which mainly held over night during the UK and the U.S. trading sessions. The reason that the Australian Dollar reacts so closely to any data out of China is because China is Australia’s biggest trading partner and buys a vast amount of raw commodities that Australia produces….and any slowdown or economic growth from China impacts the Australian Economy.
We did see the Aussie Dollar trading up to the upper boundary of the range that has held it in check against its U.S. counterpart since early April and also to a seven month high. I wrote last week about how the Aussie looks on track to eventually break this range and make a run at the 12 month high of 0.9750.
Overnight we had another quiet night but we did see existing home sales in the U.S. beat expectations. The housing recovery albeit tepid, continues on track, partly to do with cheaper home loans as a result of historically low Interest Rates.
We also had PMI out of the U.S. , and as with the Chinese, the manufacturing sector in the U.S. shows continued expansion, and this is the kind of positive ‘’green shoots’’ that could cause an about face by Janet Yellen, the head of the U.S. Federal Reserve and her lower for longer interest rate stance.