German and EU preliminary manufacturing PMI's plumb the depths

Asia equities traded mixed, with China underperforming as the market continues to digest the different trade war noises coming out both Washington and Beijing.

 

German and EU PMI 

Gold had been selling off ahead of the European PMI's as soothing trade rhetoric out of Beijing this morning had investors thinking China and the US are keen to make a compromise in October.

 

Canary in the coal mine, silver?

Silver had a wild open this morning up over 2 % and for a change is offering its more prominent brother "Gold" a bit of support today as the under positioned and undervalued silver markets could be viewed as a key and critical early indicator for risk sentiment — a canary in the coal mine of sorts.

Speaking about canaries in the coal mine., Germany flash preliminarily manufacturing  PMI collapses suggesting that whatever positive momentum was gleaned for from the prior month's data that was showing signs of basing has all but evaporated.

The data will provide an excellent soundboard for investors to gauge the depths of the global manufacturing demise and this data will signal to policymakers that more stimulus is needed. 

 

Gold markets 

Gold moved higher on the weaker German PMI print as the dreary survey raises the likelihood of an even more dovish central bank policy shift as the slowdown in the global manufacturing sectors is thought to sit atop the Fed’s “wall of worry."

Macro concerns are more significant drivers for Gold sentiment as opposed to catching an updraft from adverse trade war winds as the yellow metal caught on Friday.

Look for initial resistance to come in $ 1522-25, but if broken we could see a significant push higher as FOMO sets in again.

Still, ETF holdings are very high as are net long positions on the Comex. While macro concerns now support this current rally, however investors may be tempted to take profits in a market that is already massively long and concerned that something positive may come out of the October trade meeting.

 

Oil markets 

After the horrible EU PMI prints, those lingering demand worries could start to compete for centre stage in the oil markets again even more so if Saudi Arabia makes good on their promise to restore production quickly. 

The broader market continues to skirt oil risk thinking its one-off phenomena. But investors lower sensitivity to the oil supply shock could be due to higher inventory and spare capacity globally. Additionally, higher oil is no longer negative for the US economy and hence the muted S&P beta to oil supply impacts. From or a currency perspective, there is a structural break for the USD. IN the past, higher oil was once thought to be a headwind for the Greenback; no longer is that the case.