Wednesday June 1st

1-06-2016

Weak Chinese PMI data knocks US stock index futures

U.S. stock-index futures declined on Wednesday, as global stock markets headed lower after disappointing manufacturing data from China. China's official purchasing managers index (PMI) came in at 50.1 for May, steady on April's level and above a Reuters poll forecast for 50.0. However, the non-manufacturing component fell in May, showing slowing growth in services activity. In addition, the Caixin China manufacturing PMI, which focuses on smaller companies, fell in May to 49.2, which was below expectations. "The number released has not painted any encouraging or supportive picture at all," Naeem Aslam, chief market analyst at ThinkForex, said in a note on Wednesday. "This has made investors more wary and the most worrying aspect is that this is coming at a time when bigger short bets have started to pile in against the Chinese equity market … No matter which data set you look at, they all point (to an) immensely feeble picture for the Chinese economy," he later added. In the U.S., the Federal Reserve's Beige Book for May will be out on Wednesday, the ISM manufacturing index, construction spending and vehicle sales. The ADP employment report is due Thursday. Indicators such as the ADP and Beige Book are in increased focus due to speculation the U.S. Federal Reserve will hike interest rates in June, earlier than previously expected. "The Beige Book continues to be the most comprehensive overview of U.S. economic activity and is above all a timely and useful antidote to financial markets' obsession with and over-interpretations of monthly statistics," Marc Ostwald, strategist at ADM Investor Services International in London, said in a note on Wednesday. Earlier in the day, Japan's Prime Minister Shinzo Abe announced a large stimulus package to start this fall and delayed the country's long-awaited sales tax hike for a second time. There is also the latest European Central Bank meeting on Thursday, at which the bank is expected to hold policy but possibly increase its inflation forecasts. The Nikkei 225 ended down 1.62 percent, or 279.25 points, at 16,955.73, likely weighed by the yen taking a leg higher and after media reports confirmed that Prime Minister Shinzo Abe is likely to announce a delay to a sales tax hike planned for next year until 2019. While the news was largely expected, it may rekindle concerns about Japan's ability to handle its government debt load, which tops 200 percent of GDP. The Shanghai Composite ended down 0.08 percent, or 2.41 points, at 2914.21 after wavering between positive and negative territory. On Tuesday, the index jumped 3.32 percent on Tuesday in the wake of a Goldman Sachs report Tuesday that raised the probability of A-share inclusion in the MSCI indexes to 70 percent from 50 percent previously. The MSCI will announce the results of its Annual Market Classification Review on June 15, which may see the A-share market included in the index. The Shenzhen Composite added 0.76 percent, or 14.15 points, to end at 1886.51, after climbing 4.09 percent Tuesday. Hong Kong's Hang Seng Index was down 0.37 percent at 3:33 p.m. SIN/HK. Oil prices fell on Wednesday on expectations of high and rising exports from the Middle East, while concerns about China's economy weighed on the demand outlook. Brent crude futures were trading at $49.24 per barrel at 8:48 a.m. ET (1248 GMT), down 65 cents from their last settlement. U.S. crude futures were down 60 cents at $48.50 a barrel. Gold held higher on Wednesday after closing higher for the first time in 10 sessions the previous day, supported by an easing dollar and weaker Asian stocks. The safe haven asset has gained about 15 percent so far this year, but has been under pressure since the release of the minutes from the U.S. Federal Reserve's April meeting boosted expectations of an imminent rate rise. Bullion had its biggest decline in six months in May, losing about six percent. Spot gold was up 0.2 percent at $1,217.70. Bullion gained 0.8 percent on Tuesday in its biggest one-day gain since May 13.