China PMI Sinks As Fed Cuts And Shuts

 The FOMC did indeed cut the target Fed Funds rate by 25bps overnight, to a target range of 1.50-1.75%. China though, showed that the global slowdown is still alive and well outside of America, with official Manufacturing PMI data dropping to a below-forecast 49.3.

The FOMC did assuage my analyst poor-loser ego though, with their accompanying statement saying they are now moving to wait and see mode, and finished with cutting rates for now. That takes December of the table, and we may well see no action until well into Q2 next year if at all. The “insurance cut” as Chairman Powell put it, makes complete sense in this context. A little more wood on the campfire and the FOMC can now sit back to sing cheesy camping songs while awaiting more clarity on issues such as the trade war. A far better state of affairs than guessing the lyrics of the economic song the world will sing in 2020.

Circling back to China, the PMI reading this morning is concerning. I also note that the Non-Manufacturing PMI also sharply missed its consensus 53.9 expectation, falling to 52.8. “Official” data from China does have the habit of not deviating from official forecasts too much. Read into that what you will, but a print so far below the 49.8 expected implies that no matter how they cut it, officials couldn’t make a gloomy picture seem brighter.

The Caixin Manufacturing PMI will now be closely followed tomorrow morning for further signs all is not well. Its sample size is much broader than the mostly large government-controlled entities of the official data. Unsurprisingly, it has outperformed it; remaining in expansionary territory. It is expected to drop to 51.0 from 51.4, but a lower print than that will probably raise the expectations of more stimulus from the Chinese government. The overall picture shows China is not immune to the global slowdown, and the trade war is taking its toll there as well as the US.

The Bank of Japan announces its rate decision today around 1100, SGT. No changes are expected with the only surprise possibly being efforts to steepen the yield curve. The further past 1100 SGT we go without an announcement, the higher the chances are of a surprise from the BOJ.

The week’s data frenzy continues this afternoon with preliminary EU GDP Growth for Q3 expected at a comatose-like 0.10% increase. Last night the US GDP came in at 1.90%, 0.10% lower than last month, but above the 1.60% expected. If anyone is wondering why I seem perpetually upbeat on the US, please reread this paragraph. The prosecution rests.

US income and spending data is the highlight in North America and closely watched by the Federal Reserve. Income is expected to rise by 0.40% and spending by 0.10%. With so many foundations built on the US consumer, the spending side of the data could see a retreat by equities should growth fall below zero.

Overall, the FOMC has clearly stated that the cut overnight was some insurance before they move to the sidelines for an indeterminate amount of time. They prefer to wait and see how events play out. It is eminently sensible as the three cuts this year work their way through the system and given the unpredictability of the path of US-China trade talks, which is really what they meant in not so many words.


Apple and Facebook produced sparkling quarterly results overnight, defying the sceptics. US Q3 earnings continue to outperform and combined with a Fed rate cut, that saw WAll Street rise overnight. The S&P 500 rose 0.33% to record highs, the Nasdaq also rose 0.33%, and the Dow Jones climbed 0.40%.

Regionally, the Nikkei has been more circumspect, up only 0.25% ahead of the BOJ rate decision. China’s Shanghai Comp is flat after the Manufacturing PMI dampened the mood on the mainland. However, the trade-sensitive Kospi and Straits Times Indices have raced higher by 0.70% with the Hang Seng outperforming; rising 1.0% after the HKMA cut rates this morning by 0.25% to match the FOMC cut overnight.

The positive tone ex-China will continue throughout the day as the FOMC cut rates but with no surprises from the statement.


The US dollar weakened against the major currencies overnight after the Fed cut rates with the Dollar Index lower by 0.20% to 97.51. The EUro and Sterling both climbed by 0.30% against the greenback and have continued their move higher this morning, Euro rising 0.15% to 1.1165, and GBP rising 0.20% to 1.2925.

Trade sensitive AUD and NZD have risen 0.35% and 0.65% to 0.6925 and 0.6425 respectively. China set the Yuan midpoint at 7.0533, almost unchanged from yesterday. The offshore Yuan, the CNH, briefly spiked lower after the China PMI data, but now sits unchanged at 7.0425.

Regional currencies have edged higher today against the dollar after the rate cut widened interest rate differentials. With so much tier-1 data ahead today and tomorrow, rallies will likely be modest. The Federal Reserve cut does give regional central banks room to ease policy as well to ensure their currencies do not strengthen too much. Thus, the EM rally from here probably has a limited upside.


Oil ignored the Fed rate cut overnight, suggesting that it was already priced into the market. Both Brent and WTI fell sharply instead, as official US Crude Inventories posted a mammoth 5.70 million barrel build against an expected rise of 0.50 million barrels. Brent crude fell 1.66% to $60.50 a barrel, and WTI fell 1.12% to $54.90 a barrel.

Brent and WTI have risen in Asia though with Brent 0.40% higher and WTI 0.30% higher after the weak China PMI raised hopes of more stimulus from China’s government.

Both Brent and WTI’s October uptrends remain in place though despite the falls overnight. Only a break of monthly supports at $60.00 and $54.00 respectively will raise concerns. That said, oil, like other markets, has a lot of tier-1 data to negotiate over the next 36 hours to keep the month-long rally intact.


Gold reacted positively to the overnight Fed rate cut, rising 0.50% to $1495.60 an ounce. The Fed stating they are now on hold likely tempered the rally, which failed to regain the $1500.00 level in a slightly worrying technical sign.

Although gold has risen slightly today to $1497.50, the rally remains somewhat underwhelming suggesting the yellow metal will need help from the avalanche of data over the next 36 hours.

Longer-term support remains at $1475.00 and resistance at $1520.00. The lack of topside momentum suggests that a slew of positive data results into the week’s end could lead to a test of the $1475.00.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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