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Supply Chain Risk

Numbers beat expectation, giving risk appetite another lift

China has released the NBS Manufacturing PMI (Jun) and Non-Manufacturing PMI (Jun) as follows:

  • China June official manufacturing PMI at 50.9 (Reuters poll 50.4) vs 50.6 in May.
  • China June official services PMI rises to 54.4 vs may 53.6.

AUD/USD outlook

AUD/USD failed to deliver to the bears at the start of the Asian session, having faked out on the downside to 0.6859 only to pick up liquidity for an additional impulse to the session high of 0.6877. The pair has found strong rejection here and was approaching the fake-out lows ahead of the data dump, taking them out by a handful of pips. 

On the data, the pair has found a bid testing recently made structure within the decline at 0.6865.

Description of the Non-manufacturing PMI

The official non-manufacturing PMI, released by China Federation of Logistics and Purchasing (CFLP), is based on a survey of about 1,200 companies covering 27 industries including construction, transport and telecommunications.

It’s the level of a diffusion index based on surveyed purchasing managers in the services industry and if it’s above 50.0 indicates industry expansion, below indicates contraction.

Description of NBS Manufacturing PMI (Jun) 

The Manufacturing Purchasing Managers Index (PMI) released by the China Federation of Logistics and Purchasing (CFLP) studies business conditions in the Chinese manufacturing sector.

Any reading above 50 signals expansion, while a reading under 50 shows contraction. As the Chinese economy has influence on the global economy, this economic indicator would have an impact on the Forex market.

Market implications

The markets are shrugging off the threat of a second wave and lapping up positive v-shape recovery data, such as what we saw overnight in the US session as well. 

So long as the data continues to beat expectations and signal a recovery, investors could remain on the side of positive risk appetite.

Analysts at the National Bank of Canada have noted the risks of a second wave, but illustrate a light at the end of the tunnel for risk appetite.

 “The age distribution of the people most likely to die of Covid-19 is one of the most basic arguments against a severe lockdown of the economy. The death rate is highest among those 65 or older, most of whom are no longer in the labour force.”

Encouragingly, the analysts put the case forward for continued economic recovery. 

Absent a mutation of the virus, governments will be justified in keeping major segments of the economy open while channelling more resources to the protection of older people, especially those in seniors residences and nursing homes.

That, combined with more-aggressive testing, use of contact-tracing applications, compliance with physical distancing measures and, possibly, the obligatory wearing of masks, could fight the epidemic without excessive damage to the economy and labour market.

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