China\u2019s National Bureau of Statistics non-manufacturing Purchasing Managers\u2019 Index printed at 50.1 in May, above the market forecast of 49.5. The reading stayed just over the 50-point threshold that separates expansion from contraction.<\/p>\n
At face value, the data indicate marginal growth in services and construction activity relative to April\u2019s pace, while outperforming expectations. The release may influence near-term assessments of domestic demand conditions as policymakers and markets track whether the recovery is broadening beyond manufacturing.<\/p>\n
We see the unexpected expansion in China’s services sector as a sign of resilience in their domestic economy. This beat on the non-manufacturing PMI suggests internal demand is stronger than the market anticipated. This could provide a bullish catalyst for assets tied to Chinese growth in early June.<\/p>\n
Given this, we are looking at call options on China-focused ETFs, such as the FXI or MCHI. With the CSI 300 index recently finding support near the 3,500 level, this positive data surprise could trigger a rebound. The improved sentiment may encourage capital to flow back into Chinese equities, which have underperformed global markets by nearly 8% year-to-date.<\/p>\n
This data directly impacts our view on industrial commodities and commodity currencies. We are considering buying Australian dollar (AUD\/USD) calls, as China remains the destination for over a third of Australia’s exports. Historically, a positive surprise of this magnitude in Chinese data has led to a short-term rally in the Aussie dollar.<\/p>\n
We also believe this supports copper prices, which are a key barometer of economic activity. The construction component of the PMI data is particularly relevant, and we might add to long positions in copper futures. A sustained PMI reading above the 50 mark in China has often preceded strength in industrial metal prices over the subsequent month.<\/p>\n
Finally, the uptick in activity points to firmer energy demand. We see this as a reason to sell out-of-the-money put options on WTI crude oil futures. This strategy allows us to collect premium while betting that stronger Chinese consumption will create a floor for oil prices, which have recently seen prices fall below $80 a barrel.<\/p>\n","protected":false},"excerpt":{"rendered":"
China\u2019s non-manufacturing PMI rose to 50.1 in May, beating forecasts, signaling resilience and boosting equities, commodities.<\/p>\n","protected":false},"author":103,"featured_media":47691,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[70,71,5,78,66],"class_list":["post-54295","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-aussie","tag-china","tag-commodities","tag-copper","tag-oil"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t