Better than expected Chinese manufacturing PMI supports Beijing's policy outlook

Thursday, July 24, 2014

Stronger earnings in the US lifted the S&P 500 to a new all-time high yesterday as investor confidence improved. Markets found firm support around current levels early on as the release of persistently low inflation data on Tuesday hinted at the prospect of low interest rates in the near term. The positive undertones helped spur a rally in the dollar index which closed higher for the third consecutive session yesterday, with level this morning building on support at the previous session’s close as the DXY looks to breach tentative resistance towards 80.911.

Chinese stocks gained further ground overnight after the release of better than expected PMI data, providing further support to Beijing’s current policy outlook. The preliminary July reading came in at 52.0, outstripping expectations of a lower reading of 51.0. With the PMI reading improving for the fourth consecutive month and rising to its highest level in 18 months, mainland equity indices were supported substantially higher as the effects of Beijing’s stimulus measures begin to take hold. The CNY strengthened to a three month high against the dollar, trading around 6.1898 early on before pulling back slightly towards 6.1932 towards the end of the Asian trading session.

Spot gold prices fell further overnight, on track to post a third straight session of losses after breaching the 100 day MA just below $1,302/oz. With global equity markets rallying higher in recent sessions and geopolitical unrest taking a backseat for now, investors have pulled out of gold holdings, with the yellow metal last trading towards $1,298/oz. Further improvements in risk appetite could see prices breach support at the 50 day MA before targeting previous consolidation around $1,285/oz. Any protracted declines could see June’s lows around $1,240-50 targeted.

Plenty of economic data still to come today with eurozone manufacturing PMI readings for July coming up shortly before UK June retail sales. Over in the US a data heavy session kicks off with initial weekly jobless claims after which investors will have the Markit flash manufacturing PMI reading, new home sales and the KC Fed index to look forward to.

DXY strengthens against major peers on bullish outlook

DXY Curncy DOLLAR INDEX SPOT 2014 07 24 07 42 13

Chinese flash PMI for July rallies to highest level in 18 months

MPMICNMA Index HSBC China Manuf 2014 07 24 07 51 40

CNY firms against the dollar 

CNY Curncy China Renminbi Spot 2014 07 24 07 55 23

Events for today

0245

CN

Jul

HSBC Manufacturing PMI Prel.

0700

DE

Jun

Import Prices

0830

DE

Jul

Markit Mfg Flash

0900

EZ

Jul

Markit Mfg Flash

0930

UK

Jun

Retail Sales

1330

US

w/e

Jobless Claims

1445

US

Jul

Markit Mfg Flash

1500

US

Jun

New Home Sales

1530

US

Jun

KC Fed

1530

US

w/e

EIA Nat Gas

Topics: Gold, PMI, CNY, DXY
More from: Kash Kamal