China Manufacturing Still Cooling
Chinese manufacturing, which has been shrinking for the past four months, has been trending towards expansionary territory, after manufacturing bottomed out thanks to looser monetary policies. Last month’s surprise uptick in manufacturing numbers are being seen as a validation of the People’s Bank of China’s loosening of liquidity conditions, aimed at driving investment. While suggesting a temporary stabilization, stocks nevertheless continued to decline with some benchmarks displaying bearish behavior while indices trade at 7-week lows. Brokerage account transaction volumes fell after margin scrutiny was increased, and the Shanghai Composite is currently swinging between losses and gains.
Existing home sales leapt up 5.1% in May according to data released by the National Association of Realtors yesterday. Rebounding from last month’s reading of -2.3%, a rise in housing prices is not being seen as a bubble by Larry Yun, the NAR’s chief economist, who made a similar statement in 2006. Median prices are presently edging back towards those highs of 2006 that preceded the fall. In spite of the organization’s almost fixated optimism, the Nasdaq Composite hit record highs, reflecting a similar trend in most other stocks while the USD rebounded against peers.
Early retirement and VAT reforms are what Greece brought to the negotiating table yesterday. Not much more is known, although most Euro leaders expressed optimism regarding an approaching deal. Greece is trying to convince the European Central Bank to extend the present bailout program and release additional funds, in spite of angry reactions from both Ireland and Germany. Those nations are demanding a halt to emergency lending and capitalization for Greece’s insolvent banking sector. Deposit outflows rose above the EUR 2 billion mark during the weekend and, with GDP topping bank deposits, banks are expected to run out of collateral shortly. Since yesterday, the EURUSD dropped by more than 100 pips as traders reacted to the reports.
The range of crude oil prices continues to narrow as traders pare down positions amid the consolidation. Concerns of the ability to raise output and continued efficiency gains could be the catalyst for another round of downside in the energy complex as oversupply fears resurface. Even though the rig count continues to plunge and inventory drawdowns are expected to persist, equilibrium in current conditions remains elusive. The descending triangle pattern in WTI crude oil prices has a bearish bias and is formed by the combination of a short-term downtrend and support sitting at $59.32. A move below the key support level would be considered a breakout targeting the next support level at $58.91 and lower should it be broken. However, a move above the downtrend line could be viewed as the pattern breaking down and an indication of a potential reversal higher in prices.