Financial markets slumped in Asian session amid intensifying worries on global macro economic slowdown and unresolved problems in debt-ridden European peripheral countries. Greece approved a 6.6B euro austerity plan yesterday but the country's reduction in budget deficit will still fall short of the target previously set with the troika. China's manufacturing PMI improved in September. However, concerns over slowdown remained. In the US, ISM manufacturing index is expected to have dropped further, indicating continued deterioration in the country's economy. In the commodity sector, oil price plummeted with the benchmark WTI contract sliding to as low as 77.36 and the Brent crude contract plunging to a 2-month low of 101.12. Gold recovered steadily as safe-haven demand returned.
Greece approved the 2012 budget plan which includes fiscal consolidative measures worth of 6.6B euro. In order to secure the next tranche of the EU/ECB/IMF funding, policymakers agreed to reduce government wage by300M euro next year. Putting things in context, over 30K civil servants will have lower wage and either retire early or be lain off. The measures, if implemented successfully, will trim the country's budget deficit to 6.8% of GDP from 8.5% this year. However, the figure is below the 6.5% agreed previously. Investors are holding breath ahead of the EU meeting in Luxembourg today. Finance ministers will discuss about the approval of the 6th installment of the Greek rescue funding and risks of a Greek default.
The dramatic change in global market conditions and sharp deterioration in economic outlook have raised concerns about Chinese growth. The September manufacturing PMI climbed for a second consecutive month, by +0.3 points, to 51.2 in September, reversing the declining trend formed since March. While rise should alleviate some concerns on a hard landing, it was mainly driven by seasonal factors and made no guarantee that the trend will continue in coming months. The HSBC PMI was revised higher to 49.9, same as Augusts' reading and staying below the expansion-contraction threshold of 50. 'New export order' index gained +2.6 points to 50.9, after dropping -2.1 points in the previous month. While this may ease worries about the slowdown in external demand, the bounce is expected to be temporary. We expect export growth will decline in coming months as US and European economy deteriorates further. 'Production' and 'imports' indices climbed higher to 52.7 and 50.1 respectively, suggesting domestic demand remained resilient. The set of data should not materially change China's policy stance. We believe policymakers will strive to take a balance between controlling inflation and maintaining healthy growth.
Various countries have released PMI readings today. Swiss SVME PMI fell more than expected to 48.2 in September, signaling contraction of manufacturing activities in the country. Eurozone's manufacturing PMI was surprisingly revised higher to 51.1 in September from 49.0 in the prior month.
In the US, the ISM manufacturing index probably dipped -0.3 points to 50.3. As we mentioned in our weekly report, falling ISM manufacturing usually benefits gold/silver ratio. The fall of ISM below 50 is often accompanied with a rising gold /silver price ratio.
Commitments of Traders:
With the exception of natural gas, speculators were bearish on the energy complex in the week ended September 27. Net length for crude oil futures dived to 137 686 contracts, losing -22 279 from the previous week. Net lengths for heating oil futures remained volatile and slumped to 1 975 contracts during the week while gasoline futures dropped -5 024 contracts to 35 475. Net short for natural gas futures decreased to 180 585contracts.
Speculators remained bearish on the precious metal complex. Net length for gold futures plunged -22 728 contracts to 127 801 while that for silver futures fell -7 113 contracts to 15 425. For PGMs, net lengths for platinum and palladium futures declined to 20 867and 6 976 contracts, respectively, during the week.