When a plan doesn’t come together

US Manufacturing PMI underperforms

Although the world loves it when a plan comes together, an opposite reaction occurs when it doesn’t. Such was the case overnight when US ISM Manufacturing PMIs missed expectations quite noticeably. The headline print for April came in at 60.50, still expansionary but well below market forecasts of 65.0. The new order and employment sub-indices also missed while ominously, manufacturing prices rose. That inflation genie just won’t go back into its bottle.


The reaction was immediate; US bond yields moved lower, the US dollar gave up much of Friday’s month-end gains, and gold powered higher to just shy of USD1800.00 an ounce. If nothing else, it shows just how much financial markets are wedded to the US recovery story leading the world out of the pandemic recession.


That made it doubly odd, though to see oil rally aggressively while on Wall Street, a good dose of cyclical rotation occurred. The Dow Jones and S&P 500 rose at the expense of the tech-heavy Nasdaq. Equity and oil markets are more myopically focused on more full reopening announcements by various local governments in the US overnight.


The moves in oil and equities were inconsistent with the movements in currencies, bonds and precious metals. The only linkage really being a weaker US dollar. That suggests to me that markets are choosing the stories that fit the tail-chasing narrative of the day and that perhaps US recovery nerves are overdone. One data set does not make a trend, and I suspect the ISM will be put to bed rather quickly, and the street will quickly move on.


In the spirit of moving on, Asia has also had a mixed day at the office, with activity somewhat muted by China and Japan holidays once again today. South Korean inflation rose above expectations suggesting pricing pressures are being felt consistently across the world. Australia’s Balance of Trade for March narrowed to AUD 5.574 billion, with exports falling 2.0% whiles exports rose by 4.0%.


The fall was led by rural goods, suggesting China’s import bans are starting to make their presence felt. Nevertheless, the rising imports and Home Loans rising by 3.0% this morning indicate Australia’s domestic recovery remains on track, leaving the market impact relatively neutral.


The Reserve Bank of Australia held rates at 0.10% at its policy meeting, but upgraded its economic forecasts. The Australian dollar remained steady, while the ASX 200 rose 0.56% and the All Ordinaries climbed 0.50%. The Bank of England follows later today with a policy meeting.


The US releases its March Balance of Trade tonight, with the deficit expected to rise to -USD74.5 billion. Arguably, a higher deficit is supportive of the US recovery and thus global recovery in trade premise. I suspect markets will more closely watch the US Factory Orders data for March, after last night’s ISM PMI miss. Orders are expected to rise by 1.30%, and if that number disappoints, we could be in for another bout of US dollar weakness, falling bond yields and this time, equities and energy may not escape the fallout.

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, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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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