With important fundamental figures related to Chinese economic momentum due in the sessions ahead, the latest manufacturing data from China suggests that the pace of growth in the world’s second largest economy is still decelerating. The official manufacturing PMI managed to stay in expansionary territory while the Caixin PMI slipped into contraction for the month of May. Nevertheless, the Yuan experienced significant gains, with the offshore Yuan climbing to a 6-month high against the US dollar. Although Chinese manufacturing activity slipped, PMI’s remained mostly flat in Europe, with the aggregate figure staying on hold while Germany and Spain improved as Italy and France saw the pace of expansion slow.
More concerning was declining inflation, a development likely to postpone any tapering of ECB asset purchases. Switching gears, US nonfarm payrolls miss estimates by a wide margin, coming in at 138,000 jobs added for the period compared to a downwardly revised 174,000 positions created a month earlier. The benchmark unemployment rate unexpectedly trickled down to 4.30%, the lowest recorded level since 2001. However, this last development was the result of lower labor force participation which is not a positive indication. Weaker job creation was dismissed by equities, with key US stock benchmarks closing out the week at record highs.
Yuan Strikes Back
Weekly Report - 04/06/2017