Bullish U.S., China PMIs, Lead to an Equity and Commodity Market Rally
Wed, Sep 1, 4:11 PM ET, by ForexTraders.com
Stocks in China, HK, Japan, US, SouthAmerica, Europe and elsewhere were up today, commodities also rallied, while gold suffered some losses. Most of it was due to a series of robust data recently, boosted by today's manufacturing PMI numbers. Latin American markets continue to inflate, Colombian stocks break a recordColombia is not the likeliest of places to be the star of Latin America, but today's price action has seen the stock exchange of the country break an all-time record. Chile Peso at a six-month high, Argentinian stocks enjoying a bull run, Colombia setting new records would make one think that we are in 2006-2007 when rates were rising globally, commodities, and stocks skyrocketing, inflation worries intensifying, and not in 2009-2010, when deflation is the main theme. Nonetheless, the vast amounts of money pumped into the system let us live through this illusion for a while, and while it lasts, it is not altogether without educational benefit to observe its development. U.S. Manufacturing PMI improvesU.S. manufacturing PMI came at 56.3, way above expectations. Nonetheless, from our vantage point there is little cause for surprise since manufacturing industry is likely to outperform the rest of the economy for the remainder of this period, just as it underperformed during the bubble years. The index was boosted by gains in prices paid, employment, inventories and production, while the new orders index actually fell, indicating the likelihood that the robust performance of this month will not be maintained. In any case, manufacturing is a small portion of the U.S. economy right now, even if its future share will be larger. As for Friday's NFP release, we don't see the point of speculation and guesses on the basis of PMI numbers since data will be available in a short time. On another note, Eurozone August Final PMI came at 55.1, largely matching expectations. Among larger member nations, Italy was the only nation posting a disappointing PMI reading. More on CNYThe PBOC set the central parity rate at 6.8126 today, at a ten-week high. In spite of satisfactory PMI reading from China(51.7 officially, 51.9 accroding to HSBC) , the central bank seems to maintain the focus on the upside, concerned about the implications of the slowdown in Europe and U.S., as well as the domestic bubble bursting issues. More significant were statements by Hu XiaoLian, the female deputy of Mr. Zhou, who repeated the PBOC's commitment to Yuan appreciation, adding at the same time that appreciation alone would not resolve the U.S. trade deficit issue (she even said that it does not have a "key role" in rebalancing trade issues). She noted, also, that the SAFE does not determine investment allocation of the $2.5 Trillion cash pile on the basis of political concerns, almost certainly intended as a prop to the Euro. In spite of satisfactory PMI reading from China(51.7 officially, 51.9 accroding to HSBC) , the central bank seems to maintain the focus on the upside, almost certainly worried about the implications of the slowdown in Europe and U.S., as well as the domestic bubble bursting issues. The sustained string of higher fixes must surely be unnerving a lot of people in Washington. It will be interesting to see how long U.S. politicans can manage to escape the temptation to make some gains by attacking and condemning the Chinese. As the final two years of the Obama presidency approach, we suspect that the President will find it more and more costly to oppose the populist measures advocated by some members of the Congress, the constant chatter about the need impose higher tariffs on China, and to declare the country a currency manipulator. It is clear that the earlier the Chinese act, the better it will be for them,if they have the plan to do anything serious at all. Singapore overtakes Switzerland to become the 4th most active FX trading centerIn yet another testimony to the rapidly increasing power of Asian money in the word, the BIS reports that Singapore has become the fourth most active FX trade center after London, New York and Tokyo. There is no question that much of this dynamism is in fact a consequence of the bubbling Chinese export sector, but even then, one finds it hard to avoid being nimpressed by the great achievements of the continent over the past 2-3 decades. Swtizerland slipped from third to fifth place as Europe's importance decreases to the advantage of East Asia. Let's conclude by recalling that August, which is frequenly a bullish month for stocks, saw its worst performance of nine years in 2010, according to the WSJ. Between Friday and now not much should happen, as markets will be busily waiting for the NFP, which will set the tone of the month probably.
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