Commodity prices have been under significant strain recently. Gold has broken to its lowest since early 2010, base metals are back at multi-year lows, whilst the oil price is once more in bear market territory. Figures released a week ago on China’s holdings of gold (which were disappointingly low) have sent commodity markets sharply lower. However, that news is not getting any better. The release of the flash reading of China’s manufacturing PMI has made for grim reading. The PMI is a big hit to market risk appetite and just another reason to think commodity prices are going to continue lower.
It has been something of a quiet week for economic announcements. However in the early hours of the morning whilst (most) European traders were safely tucked up in their beds, news came that China’s manufacturing industry is on the wane. The flash reading of the flash PMI is back at levels not seen since April 2014. Also, since peaking about 12 months ago, there is a very definite downward trend in the Manufacturing PMI which has taken the indicator decisively into negative territory in 7 of the past 8 months.
The manufacturing PMI is very much seen as a lead indicator for economies and this is really pouring further doubt on the assertion of the CHinese government that growth was running at 7.0%. A breakdown of the survey also makes for very grim reading, with almost all components of the survey showing a deterioration. (Thanks to Business Insider for the table). This does not bode well for the Chinese economy and points to continued slowdown.
Commodity prices continue to fall. Gold is down another $10 today below $1080, and is well on the way towards a test of the 2010 low at $1043. Furthermore, the copper price is also trading lower yet again.
In terms of forex, the commodity currencies are under pressure as a result too. The Aussie and the Kiwi are the prime candidates for weakness with the Aussie especially weak and sharply trading at multi-year lows today. Weak China data will always hit the Aussie due to its significant proportion of commodity exports to China.