Yesterday and Wednesday, we had PMI data from most developed economies. However, the US and Chinese data caused almost a free fall in Gas and Oil prices.
Starting from Monday, we saw all published August Purchasing Manager Index numbers less than July and mostly less than expectations. While most investors focused on German and Eurozone data, both missed the expectations and confirmed that economic activities in Eurozone are getting less and less. On Tuesday, factory orders in Germany, with a -1.1% fall, confirmed that investors’ concerns are not unfounded.
Chinese trade data confirms the overall weakness of the global economy.
Tuesday, and in the North American season, we had ISM PMI data for August. Data were mixed, but in general, the impressions were positive. Markit service PMI at 43.7 was lower than the market expectation of 44.2 and 44.1 in the previous months. The final composite PMI, also at 44.6, was below market expectations and the previous month 45.0. Both recorded declines for five consecutive months and hit a new low in May 2020. In addition, the ISM non-manufacturing PMI recorded 56.9, much better than 55.1 expectations and 56.7 a month earlier. The sub-data shows that the employment index, inventory index, and new orders index, all increased, recording 50.2 (previously 49.1), 46.2 (previously 45.0), and 61.8 (previously 59.9). However, the supplier delivery index and price index fell, recording 54.5 (previously 57.8) and 71.5 (previously 72.3).
US data showed that the economy is still strong and can handle a bit more tightening policies, so it helped the Hawkish fans to go after a 75-basis points rate hike. With these published data, now, FedWatch shows an 80% chance of a 75-basis point rate hike by the Fed, returning to the optimism from a week ago. This also explains why the dollar continues to be supported by buying. With these expectations from the FED meeting, stock markets fell on Tuesday’s last trading hours.
Concerns over the global economic growth continued today in the Asian season with Chinese trade data. The August trade surplus in China shrank more than expected as fewer manufacturing productions and COVID-related disruptions weighed on exports and imports.
China National Bureau of Statistics report showed the country’s trade balance at $79.39 billion in August, sharply dropping from $101.26 billion in July. China’s exports grew by only 7.1% in August, twice less than July and well below expectations of 12.8%. Imports barely expanded during August, growing only 0.3% compared to expectations of 1.1%. Less export from the biggest global factory means economic activities are decreasing globally. On the other hand, China’s key service sector also grew much less than expectations in recent months due to headwinds from COVID-19 disruptions. These mentioned problems tumbled the domestic demand and decreased the imports comparing previous months.
Adding the latest COVID-19 lockdowns in China will tell us why we expect less energy demand. The latest COVID-19 lockdowns disrupted economic activities in China’s major trading hubs, including the eastern city of Yiwu, Shenzhen, and Chengdu.
So, with these weaknesses that we expect to see in the global economy, we can expect lower spending and less consumer demand, which ends with less production and demand for energy. After mentioned news and data, Natural Gas lost almost 10%, and US Oil is trading lower by about 6.7% comparing yesterday’s opening prices.
From the technical point of view, WTI under 20 DMA at $90 turned into a downtrend. We can see more pressure on the prices at the current price, with the next target around $78. However, more fall is not likely until September 21 and the FED meeting, as market participants still doubt FOMC decisions and outlook. Conversely, turning to the bullish trend requires prices above $90.