Chinese PMI does little to steady trading nerves

15.07 AEST, Friday 1 June 2012

Chinese PMI does little to steady trading nerves

By Tim Waterer (Senior Trader, CMC Markets)

Commodities continue to feel the pain from Spain with investors wanting to remain at arm’s length from oil positions, while global economic data shows no signs of any imminent demand pressures on the crude price. The old saying of ‘sell in May’ does not tell the whole picture of what happened to long crude oil positions last month. It was more like an exodus of biblical proportions.

Chinese PMI did little to steady the nerves of traders today with the number undershooting the forecast, and risk assets initially reacted accordingly by slipping further into the red. However the low PMI fuelled new stimulus hopes which saw markets shift off the lows.

The Australian Dollar took the Chinese PMI result harder than most falling half a cent on commodity demand concerns. With global stock markets back tracking, the AUD has very little positive drivers particularly with future RBA rate cuts waiting in the wings. The AUD may still have a future above parity in the second half of 2012, however it looks set to do it tough in the interim with the US Dollar remaining a popular ‘safety’ pick.

Traders are searching far and wide for signs of optimism but the economic data continues to paint a gloomy picture, hence the departure en masse from risk assets in May appears not to have run its course yet. There has been a raft of disappointing results around the globe already this week, however the ‘Grandaddy’ of economic data still awaits in the form of US Non-Farm Payrolls, with the result likely to either exacerbate the selling or stem the flow. This will depend on which side of 150k jobs the number comes in at.

The Euro looks in danger of getting beaten into submission unless the IMF or some other willing participant steps forth with a bailout package for Spain. The current EURUSD rate of around 1.23-1.24 could quickly turn into 1.20 or even 1.19 over the next month if the Greece and Spain situations have unfavourable outcomes.

Financial shares were among the few shining lights on the Australian market to close the week. However mining heavyweights like BHP and RIO again traded well into negative territory after Chinese manufacturing PMI intensified growth concerns and therefore concern over appetite for raw materials.

The ASX200 recovered from the worst levels of the day, with traders trying to turn a negative into a positive by hoping that the soft PMI will increase the odds of the introduction of fresh Chinese stimulus. Although it remains to be seen how soon that hope may turn to reality.
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