Weaker Chinese services PMI sparks sell-off

Tuesday, August 05, 2014

Asian benchmark indices posted heavy losses on Tuesday as weaker Chinese services PMI data prompted a sell-off among investors. Japanese stocks led the move lower after struggling with direction at the start of the week with bot the TOPIX and Nikkei indices losing 1.0% overnight. Chinese markets reversed some of Monday’s gains after HSBC’s services PMI reading for July slipped to 50.0 from 53.1 the previous month, fuelling a wider sell-off across Asia as the reading contracted to its lowest level so far this year, on the borderline between expansion and contraction.

Spot gold prices held below the 50 day MA despite the moderate risk aversion during overnight trading. Prices have remained underpinned below $1,300/oz since the end of July with a brief dip below the 200 day MA late last week as haven demand eased. Any escalation of tensions between Russia and the West and in the Middle East could support prices higher in the coming session; however, the risk profile for now seems to be relatively subdued with investors optimistic ahead of today’s data releases.

Three month LME nickel prices managed to find support at the 100 day MA on Monday, with prices early on this morning managing to hold around yesterday’s close. Concerns regarding rising nickel supplies have seen prices decline over 8% throughout July as speculation that Indonesia may soften their export ban and weaker data coming out of China prompted the liquidation of long positions. Even with the sell-off throughout July nickel prices have still gained 33% year-to-date but with LME nickel stocks up over 20% since the start of the year investors will be paying close attention to any significant inventory flows in and out of Asia, particularly in Johor, Malaysia where almost half of the LME registered warehouse stocks are held.

A busy day for economic data with eurozone services PMI and retail sales data to look forward to later this morning while in the afternoon investors will be eagerly anticipating the release of the US services PMI, ISM non-manufacturing data and factory orders. After the sharp sell-off towards the end of last week for US equity indices markets managed to regain some of those losses yesterday with the hopes of further gains today on any positive surprises.   

Chinese services PMI slips to 50.0 in July

MPMICNSA Index HSBC China Servi 2014 08 05 07 45 48

Spot gold prices remain underpinned below $1,300

XAU Curncy Gold Spot Oz 2014 08 05 07 51 21

Three month LME nickel prices find support at the 100 day MA

LMNIDS03 Comdty LME NICKEL 3 2014 08 05 07 57 10

Events for today

0245

CN

Jul

HSBC Services PMI

0855

DE

Jul

Markit Services PMI

0900

EZ

Jul

Markit Services PMI

0930

UK

Jul

Markit/CIPS Services PMI

1000

EZ

Jun

Retail Sales

1445

US

Jul

Markit Services PMI

1500

US

Aug

IBD Sentiment

1500

US

Jun

Factory Orders

1500

US

Jul

ISM Non-Manufacturing

All times UK Local Time

Topics: Gold, PMI, LME, Nickel
More from: Kash Kamal