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Us Inflation, Manufacturing Down: What It Means for Asian Markets

Us Inflation, Manufacturing Down: What It Means for Asian Markets
FILE PHOTO: The Federal Reserve building stands in Washington April 3, 2012. REUTERS/Joshua Roberts/File Photo

Get the latest insights on how US inflation and manufacturing data impact Asian markets. Learn about currency movements, commodity prices, and key economic indicators for June 2024.

US Session Recap

In the latest US economic updates, the Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation preferred by the Federal Reserve, remained broadly in line with market expectations for April. The headline and core readings remained unchanged year-over-year at 2.7% and 2.8%, respectively. On a month-over-month basis, the headline PCE rose 0.3%, matching estimates, while the core figure increased by 0.2%, slightly below the forecasted 0.3%.

On the other hand, the Chicago Purchasing Managers’ Index (PMI) painted a less optimistic picture. It reported a significant decline in business activity, with a reading of 37.9 for April, marking the sharpest contraction in four years. Declines in significant sub-components such as new orders, production, and employment drove this downturn. Consequently, the dollar index (DXY) experienced a sell-off, hitting a low of 104.36 before closing at 104.62 last Friday.

Implications for the Asia Session

As Asian markets open, they digest these mixed signals from the US. The DXY is trading around 104.50 and appears poised to slide further, while gold prices are holding steady above $2,320 per ounce. As indicated by last week’s national PMI data, China’s manufacturing sector showed signs of contraction in May. However, S&P Global’s PMI estimate suggests a seventh consecutive month of expansion with a reading of 51.6. Should the final PMI figures disappoint, this could exert downward pressure on crude oil prices. West Texas Intermediate (WTI) oil was trading at approximately $77.60 per barrel as Asian markets began their trading day.

Key Indicators to Watch

  • ISM Manufacturing PMI (2:00 PM GMT): Economists expect the ISM Manufacturing PMI to continue contracting in May, with an estimated 49.8, down from April’s 50.2. If the data confirms weak manufacturing activity, the dollar could face further downward pressure, potentially boosting gold prices.

Inflation Steady, Manufacturing Down: What It Means for Asian Markets

Regional Currency Outlooks

  • Australian Dollar (AUD): The AUD maintained its bullish momentum from last Friday, trading above 0.6650. With no major economic events on the calendar, support, and resistance levels to watch are 0.6590 and 0.6700, respectively.
  • New Zealand Dollar (NZD): The NZD opened strongly, trading above 0.6150. Support and resistance levels are set at 0.6090 and 0.6190. Additionally, no significant news events are today.
  • Japanese Yen (JPY): Japan’s manufacturing PMI, released at 12:30 AM GMT, is expected to increase to 50.5 from 49.6, indicating a return to expansion. Moreover, USD/JPY was trading around 157.10 as Asian markets opened.
  • Euro (EUR): The Euro area’s manufacturing PMI, expected at 8:00 AM GMT, might surprise the upside and potentially act as a bullish catalyst. The final PMI reading is anticipated at 47.4, the highest in 15 months.
  • Swiss Franc (CHF): Switzerland’s manufacturing PMI, due at 7:30 AM GMT, will likely show continued contraction at 45.4. This could also weaken the franc before European trading hours begin.
  • British Pound (GBP): At 8:30 AM GMT, analysts anticipate the UK’s manufacturing PMI to indicate substantial expansion, with an expected reading at 51.3. This could provide upward momentum for the pound.
  • Canadian Dollar (CAD): Canada’s manufacturing PMI, scheduled for release at 1:30 AM GMT, is expected to return to expansion with an estimate of 50.2, potentially strengthening the Canadian dollar.

Commodity Watch:

Oil:

Additionally, if China’s PMI data underperforms, WTI crude oil prices might face downward pressure. Currently, oil is trading at around $77.60 per barrel.

Conclusion:

The incoming PMI data and its implications for the broader economic landscape will heavily influence today’s trading session in Asia. Furthermore, traders will closely monitor these developments, with particular attention to the ISM Manufacturing PMI for cues on the US dollar’s direction and subsequent impacts on commodity prices and regional currencies.

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