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Analysis

China’s recovery is losing steam

BY Janne Muta

|May 31, 2023

China's manufacturing Purchasing Managers' Index (PMI) fell to a five-month low of 48.8, pressuring commodities and commodity currencies in the Asian session today. Yesterday the US equity markets finished flat. Investors remain cautious amidst concerns over the debt ceiling, inflation, Fed policies, and a slowing economy.

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The US consumer confidence dipped (102.3, 99.1 expected, 103.7 prior) but came in above expectations. Gold has gained a bit while oil prices dropped almost five per cent as comments from Russian oil officials, suggested the country, the world's third-largest oil producer, might leave output unchanged​. This shows that the OPEC+ isn’t unanimous and the cartel’s output cut plans might fail. USOIL extended losses today, driven by concerns over reduced demand from China.

The DJ slipped by 0.27%, while the S&P 500 and Nasdaq remained practically unchanged. FTSE and DAX declined by 1.3% and 0.19% respectively. USOIL fell 4.8%, while Gold edged up by 0.03%. The JPY (0.01%) ended the day unchanged against the US dollar, while the Euro weakened by 0.31%. Today’s main risk events are the German CPI release, the Canadian GDP and the US JOLTS report that’s used to gain insight into the health of the job market ahead of Friday’s NFP release.

China's manufacturing Purchasing Managers' Index (PMI) fell to a five-month low of 48.8 The index coming in below expectations and below the crucial 50 mark, signals contraction. The non-manufacturing PMI also dropped to 54.5, marking its slowest pace in four months. The weak PMI figures pushed NZDUSD and NZDCAD pairs lower. We highlighted these pairs in yesterday’s report as potential short-trade candidates.

The challenges faced by China's economy primarily stem from weak domestic demand and an uneven recovery. To ensure sustainable growth, the country will need to address these issues effectively through targeted policies and reforms.

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Nasdaq

Nasdaq could correct lower after the momentum loss yesterday. The market has rallied strongly and the rally lost momentum in yesterday’s trading. Below 14 309, look for a move to 14 179. Above 14 309, the market probably trades to 14 500.

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FTSE

FTSE is bearish below 7538. Above 7543, a move to 7620 looks likely.

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NZDUSD

NZDUSD is bearish below 0.6025 and could trade down to 0.5946. Above 0.6025, look for a move to 0.6060.

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NZDCAD

NZDCAD remains bearish below 0.8253 and could trade down to 0.8105. Above the level, look for a move to 0.8305.

The Next Main Risk Events

  • EUR German Prelim CPI
  • EUR ECB Financial Stability Review
  • CAD GDP
  • USD JOLTS Job Openings
  • CHF SNB Chairman Jordan Speaks
  • USD FOMC Member Harker Speaks
  • EUR CPI Flash Estimate
  • EUR Core CPI Flash Estimate
  • EUR ECB President Lagarde Speaks
  • USD ADP Non-Farm Employment Change
  • USD Unemployment Claims
  • USD ISM Manufacturing PMI
  • USD ISM Manufacturing Prices
  • USD FOMC Member Harker Speaks
  • USD Average Hourly Earnings
  • USD Non-Farm Employment Change
  • USD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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