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Risk trades stumbled during the US session and the US dollar rallied after US 10-year yields touched 4% in the aftermath of the ISM manufacturing survey, which came in as big upset.
The surprise came after the prices paid component of the survey surprised with a rise to 51.3 compared to 45.1 expected and well-above the 44.5 prior. Basically, price pressures increased (51.3 vs 44.5), supporting agreement between buyers and sellers to place orders in the near term.
The ISM Manufacturing PMI survey itself edged higher to 47.7 in February of 2023 from 47.4 in January, which was the lowest since May 2020, but fell short of expectations of 48.
The reading pointed to a fourth consecutive month of falling factory activity with companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year.
New orders (47 vs 42.5) and backlogs of orders (45.1 vs 43.4) contracted at a slower pace and the customers’ inventories index remained at ‘too low’ levels (46.9 vs 47.4), a positive for future production.
On the other hand, a bigger decline was seen in production (47.3 vs 48) while employment fell (49.1 vs 50.6) although companies continue to indicate that they will not substantially reduce head counts, as sentiment is positive about the second half of the year. At the same time,
Also, the commodity trade was on fire today after the Chinese manufacturing reading came in at 52.6 vs 50.5 expected, and services at 56.3 vs 54.4 prior. The private PMI from Caixin was also strong at 51.6 vs 50.2 expected.
The commodity market liked those numbers, with oil prices boosted and copper is up 1.5% despite reports of a near-agreement at a mine in Panama that produces 1.5% of global supply.
Commodity currencies are performing strongly today against rising rates so far with antipodean currencies leading the way alongside the Canadian dollar.
Today’s Australian CPI numbers were below estimates and substantially, pushing back on RBA hikes, so one can only assume the China narrative is driving the AUDUSD pair.
