China's two manufacturing PMIs were released overnight

Danske Research Team from Danske Bank A/S at 02/01/10

 

Diverse movements in commodities this morning: WTI is trading around USD73and copper is now just below USD6,700. The complex saw broad-based declines on Friday following a strengthening of the dollar on the back of a stronger-than-expected US GDP figure for Q4 as the US economy grew 5.7% q/q ar. The strong headline number was largely driven by a build-up in inventories and thus the report does not necessarily bode well for demand going forward. Indeed, the dollar-denomination effect seemed to dominate the reaction of commodities. China’s two manufacturing PMIs were released overnight and each paint a somewhat different picture of the Chinese economy. The HSBC/Markit manufacturing PMI improved strongly with solid gains in both new orders and export orders. In contrast, the official NBS manufacturing PMI declined slightly in January suggesting growth is slowing slightly, although it remains strong on the whole. Inflationary concerns are also on the rise according to the reports, and our economists still believe interest rates will be raised and the gradual appreciation of CNY resumed in Q2. India, South Korea and Taiwan also reported strong gains in manufacturing PMIs in January: in all three countries, both new orders and export orders increased. This supports the view that growth in industrial activity is again accelerating, to some degree driven by improved exports to developed markets. The weekly CFTC data revealed a decline in speculators’ net long positions in both oil and gold; non-commercial positioning in copper was broadly unchanged. The January retreat in oil prices may have been driven by speculative positions being unwound – indeed, our tests suggest that there is an effect of non-commercial net long positions in oil on the price, see FX Research. However, it cannot be ruled out that the decline in prices has led some traders to exit their positions as well. Today will see the release of a bunch of PMIs: eurozone countries are due to report manufacturing flash PMIs for January, and in the US ISM is due for publication. Otherwise, the main data release this week will be the US employment report on Friday: our economists look for a rise in payrolls of 50K (consensus: 20K).