Commodities and Linked Currencies Hammered by Chinese Data

(eToro Blog) China’s manufacturing sector continues to experience a downtrend as evidenced by two separately released PMI reports today. According to the Chinese Federation of Logistics and Purchasing, the Purchasing Managers Index fell in May to 50.4, edging closer to the 50.0 threshold which separates contraction from expansion. Analysts had expected a decline to only 52.2 from April’s 53.3. That survey generally encompasses China’s largest firms, many of which are backed by the state. Markit Economics released its HSBC PMI report as well for the seventh consecutive month. They report, which surveys smaller, privately held Chinese companies, showed a decline from April’s 48.7 reading to 48.4.

Combined, the two reports suggest that there is wider spread weakness in the sector than envisioned. Earlier in the week it was reported that the Chinese government would not be rolling out the big stimulus guns as they did during the height of the global fiscal crisis a few years ago; that sent Chinese inflation to levels that they have only recently been able to bring under control and hence the reason for the relatively moderate pace of easing. However, markets are hopeful that the latest data could at least compel Beijing to hasten that pace.

While recently implemented monetary reforms are not yet reflected in the data, analysts are particularly concerned with the outlook; according to the data releases, new orders are shrinking even as inventories are being built up which implies further weakness ahead since existing stock will satisfy any uptick in orders, rather than through an increase in output.

In currency markets, the news of China’s deteriorating manufacturing sector sent the Australian Dollar down 0.4% against the U.S. Dollar to $0.9686; on OpenBook, trading on the AUD/USD is predominantly bullish as traders buy at the dip. OpenBook guru ryklose, who is from Australia, had two smallish gains on a pair of profitably closed short positions. Over the past six months, the guru’s 27.1% allocation in the AUD/USD has resulted in a gain of 4.1% while a 9.3% allocation in the NZD/USD pair has returned 4.4%. Smaller allocations in oil (0.8%) and gold (1.9%) have provided the guru and his 267 copiers with gains of 10.8% and 6%, respectively. The guru’s P&L is in the red for the past week, but at the month and beyond is firmly in the green with 66.3% profit for the month, and more than 300% for the quarter and six months, then leveling out somewhat to 288.6% for the year.

The price of oil was also significantly impacted by the Chinese data, with London-traded Brent crude oil falling to $101.38 a barrel. NYMEX-traded WTI crude oil fell to $86.04 a barrel and last month recorded a 17+% loss. On OpenBook, oil traders are also taking advantage of the decline in the per barrel price to buy at the dip and a similar situation exists among OpenBook’s gold traders. Indonesian trader deBalqis had a 50.18% gain in a short gold position that he copied from OpenBook guru MIB1984. That particular trade remains open and is currently showing a 48.33% gain with a TP set at $1550.82. The Australian trader, who has 220 copiers, has an 82.5% allocation to gold in his portfolio which has provided a 15% gain over the period.

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