Pre-PMI Tension
Markets returned to meltdown mode overnight as Fed inspired uncertainty and Asian Development Bank estimated growth downgrades slapped sentiment ahead of crucial PMI readings over the next twenty four hours. Shares, commodities and risk currencies all come under pressure as fears for emerging economies dominated. A regulatory scandal at Volkswagen added to the pressure on the German DAX, culminating in a 3.8% belting.
The new market maxim appears to be “when in doubt, sell out”. There were no major economic releases overnight, no announcements, no surprises. Instead, the market abhorred the vacuum, succumbing to underlying doubts sown by the Fed’s inaction last week. The action may be partly explained by position trimming ahead of numbers dropping in the Asia Pacific and European sessions.
Around the East Asian mid-session flash manufacturing PMI data is released in China. Participants expect the read to show ongoing contraction, with the index below the 50 break even line at 47.5. A read at these levels would likely confirm the current bearish mood, although there is a possibility of positive surprise. In contrast, European investors are expecting services and manufacturing PMIs for France, Germany and the EC to show expansion across most areas, potentially setting up a negative surprise.
Frequently Asked Questions about this Article…
The recent market meltdown was triggered by uncertainty inspired by the Federal Reserve and growth downgrades estimated by the Asian Development Bank. This uncertainty affected shares, commodities, and risk currencies, with emerging economies being particularly impacted.
The regulatory scandal at Volkswagen added pressure to the German DAX, resulting in a significant 3.8% drop. This contributed to the overall negative sentiment in the market.
The saying 'when in doubt, sell out' reflects the current market sentiment where investors are reacting to uncertainty by selling off assets. This is partly due to the lack of major economic releases or announcements, leading to a vacuum that exacerbates underlying doubts.
PMI readings are crucial as they provide insights into the manufacturing and services sectors' performance. In the current market situation, the PMI readings are particularly important as they could confirm or challenge the prevailing bearish mood, especially with the anticipated contraction in China's manufacturing sector.
Participants expect China's flash manufacturing PMI data to show ongoing contraction, with the index likely remaining below the 50 break-even line at 47.5. This would confirm the current bearish sentiment, although there is a possibility of a positive surprise.
European investors are expecting the services and manufacturing PMIs for France, Germany, and the EC to show expansion. If these expectations are met, it could potentially set up a negative surprise, impacting investor sentiment.
Investors are trimming positions ahead of PMI data releases to manage risk and prepare for potential market movements. This cautious approach is due to the uncertainty and potential surprises that could arise from the upcoming PMI readings in the Asia Pacific and European sessions.
The Federal Reserve's inaction last week contributed to the market's current state by sowing doubts and uncertainty among investors. This lack of decisive action has led to increased volatility and a tendency for investors to sell off assets in response to the uncertainty.
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