China’s NBS Non-Manufacturing PMI recorded a 49.4 in January, falling short of the forecasted 50.3. This reading indicates a contraction in the non-manufacturing sector, as figures below 50 suggest decreased activity.
The USD’s momentum is supported by Warsh’s nomination to the Federal Reserve and higher-than-expected US Producer Prices. Gold prices adjusted upwards, surpassing $5,000, following profit-taking and a stronger dollar.
Stellar Declines to Three Month Low
Stellar experienced a decline, reaching a three-month low below $0.20. This performance is influenced by negative funding rates and a decrease in Open Interest, with momentum indicators hinting at further downward trends.
Microsoft’s post-earnings decline created a $400 billion decrease in market value. In parallel, Bitcoin, Ethereum, and Ripple have seen weekly declines of approximately 6%, 3%, and 5%, respectively. Bitcoin is approaching a low of $80,000, while Ethereum is below $2,800, highlighting ongoing bearish market trends.
In currency markets, EUR/USD weakened under 1.1900 as the US dollar gained strength, while GBP/USD fell towards 1.3700 due to rising selling pressure. Speculation over the Federal Reserve’s future leadership continues to affect market movements.
China’s Service Sector Contraction Impacts Global Markets
The new data shows China’s service sector unexpectedly shrank in January, with the PMI figure coming in at 49.4 when a reading of 50.3 was expected. Any number below 50 points to contraction, not just a slowdown. For us, this is a clear warning sign about the health of the world’s second-largest economy as we begin 2026.
This report suggests immediate weakness for industrial commodities that rely heavily on Chinese demand. Copper prices, which have already fallen over 3% this month to below $8,400 per tonne, are particularly vulnerable to further declines. This makes shorting copper futures or buying put options on mining sector ETFs a strategy to consider for the coming weeks.
Currencies tied to commodity exports, especially the Australian dollar, are likely to face downward pressure. We saw how the AUD/USD pair fell sharply during the third quarter of 2025 when similar concerns about China’s economy surfaced. This historical precedent suggests that purchasing put options on the Aussie dollar could be an effective way to trade this news.
The ripple effects will likely spread to global equity markets, hitting European indices with high export exposure to China the hardest. Germany’s DAX index, for instance, saw a notable 1.5% drop in a single day last year after a weaker-than-expected Chinese industrial production report. This suggests that it may be prudent to hedge long positions or initiate speculative shorts on indices with significant Chinese trade links.
Overall, this contractionary signal from China promotes a risk-off sentiment in the markets, which typically strengthens the US dollar. The US Dollar Index (DXY) has already climbed nearly 2% since the start of the year, and this news provides another catalyst for its rise. We should anticipate that long dollar positions against growth-sensitive currencies will continue to be a favorable trade.
