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Crude Retreated after Failing to Hold above US$50/bbl; China PMI Suggests Recovery Unsustainable Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue May 31 16 21:50 ET

Failure to sustainably hold above US$50/bbl, both crude benchmarks ended the day lower. The front-month WTI contract initially rose to 50.1 before settling at 49.1, down -0.47% while the Brent contract climbed higher to 50.05 earlier in the day before ending the day at 49.69, down -0.14%. Prices continued to grind lower in Asian Wednesday. Precious metals were mixed. While gold price recovered after dropping over the past 8 days, silver remained under pressure. Note, however, that silver (up +16% ytd) has outperformed gold (+14% ytd) since the beginning of the year. For PGMs, platinum fell for a second day to 978.7, down -0.18%, while palladium added +1.51% to close to 547.85. Wall Street softened as weighed down by financial and energy sectors, as well as mixed US economic data. DJIA dropped -0.48% while S&P 500 was down -0.1%. Shares in Asia Pacific started the day weaker with Japanese Nikkei 225 losing -0.86% and Australia's S&P/ASX 200 losing -1.27%. The exception is China of which the CSI 300 steadied after soaring 3.33% on Tuesday, The rally was driven by media report suggesting that Chinese shares might be included in the MSCI global benchmarks as soon as this month.

Renewed concerns over growth slowdown in China lingered with both manufacturing and services activities staying soft in May. The official manufacturing PMI stayed unchanged at 50.1 last month. A similar gauge compiled by Caixin/Markit.shows a -0.2-point drop to 49.2 in May. Markit suggests that China's economy "has not been able to sustain the recovery it had in the first quarter and is in the process of bottoming out". It urges he government to "make full use of proactive fiscal policy measures accompanied by a prudent monetary policy to prevent the economy from slowing further". The non-manufacturing (services) PM dipped -0.4 point to 53.1in May. Weakness in Chinese economic activities might have been temporarily overshadowed by speculations that Chinese stocks might soon be included in MSCI. Goldman Sachs now prices in a 70% chance that the inclusion would happen this month as MSCI announces its latest constituents in its benchmark index.

In the US, real personal spending rose +0.6% m/m in April, up from a flat reading in March, while the savings rate slipped -0.5 percentage point to 5.4%. the improvement in personal spending was a pleasant surprise as the Conference Board's consumer survey showed a decline in the consumer expectations index to a 25-month low of 79 in May. Looking further in the Conference Board survey, the jobs plentiful diffusion index fell -1.3 points to -5.3 in May. On inflation, the core PCE deflator rose 0.2% m/m, and +1.6% y/y, in April. On the property market, the Case-Shiller 20-City index grew +0.9% m/m, and 5.4% y/y, in March. Separately, the Chicago PMI dropped -1.1 points to 49.3 in May while the Dallas Fed's manufacturing index plunged -6.9 points to -20.8 last month.

Today, US' ISM manufacturing index probably added +0.4 point to 49.6 in May, while construction spending grew +0.5% m/m in April, up from +0.3% a month ago. The Fed's latest Beige Book would be released. We would also received PMIs for various European economies.


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