China PMI Disappoints and Drags Commodities Lower

Today marked a new chapter for polling company Markit’s Chinese purchasing managers index (PMI) as it is now sponsored by Chinese business news company Caixin. The PMI data out of China disappointed with a 48.2 reading, lower than the 49.8 forecasted. A reading below 50 is seen as contraction. It is one of the lowest indicators of the manufacturing industry since the revision to the May survey in 2014. Weaker exports and stock market uncertainty have eroded the confidence of purchasing managers. Asian stock markets were quick to react dropping after the PMI report was published.

Commodities were the hardest sector to be hit by the news of a further slowdown in China. Oversupply and lower demand are keeping Oil prices under pressure. Metals have seen lower demand and little inflation lower the demand as a hedge. The Greek debt deal agreement defused the drama that had reignited the appetite for Gold as a safe haven. Corn and Wheat lost over 6 percent during the week with Oil, Copper and Gold in the 4 percent range. Natural gas seemed to the be one of the least affected commodities during the rout as it only lost 1.89 percent during the week.

Next week’s FOMC statement could keep pressure on commodities as the USD could get a boost from a hawkish stance. Oversupply and lower demand are common themes in the commodities market and there will be little next week to change that outlook. The USD strength or weakness is the main factor that could change the overall valuations until global growth is back on track.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza