Chinese PMI causes mild disappointment

15.25 AEDT, Friday 1 February 2013

Chinese PMI causes mild disappointment

By Tim Waterer (Senior Trader, CMC Markets)

If the US Payrolls data is incongruent with the optimistic rally of recent months, a sizeable ‘question mark’ will be placed next to the current elevated pricing levels. So far this year the market has shown a great ability to absorb bad news by reacting with only modest declines, as was the case with the US GDP contraction. However, a poor Payrolls result may be a more significant test of the market’s resolve. While traders will likely give any result around the 160k level a ‘pass’ mark, Federal Reserve officials won’t be feeling overly cheery until we start seeing consecutive prints above the 250k level.

On balance, if the Chinese PMI readings today were disappointing it was only mildly so. It is almost a case of ‘take your pick’ as to which PMI number (the government one or the HSBC one) is the most accurate reflection of the manufacturing story in China, with bullish traders likely to focus on the HSBC reading while the bears will place more stock on the official reading.

If the AUD is a barometer for Chinese economic health then the downward reaction to the PMI data is evidence that the numbers underwhelmed somewhat. Soft domestic PPI data also contributed to AUD weakness today with the currency facing a battle to remain above the 1.04 level. The AUDUSD rate could be looking at a fall to 1.0370 this evening if we see a risk-off theme in the aftermath of the US jobs report. The AUD will likely bear the brunt of any broad downward shift in risk sentiment, while conversely the moves higher by the AUD could be limited with the Euro attracting much of the buying enthusiasm in currency markets these days.

The Australian sharemarket did not spend too much time dwelling on the end of the 10 day winning streak on Thursday. Nor did our market seem overly concerned about the average Chinese PMI data today. The key mining and financial stocks stepped up to the plate as the ASX200 again reclaimed the 4900 level. With the Australian bourse now on a new ‘one day’ winning streak, US jobs data will likely be instrumental in whether 5000 is on the radar for the local bourse next week.
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