BEIJING: In China, the May HSBC flash manufacturing PMI rose to 49.1, up slightly from a disappointing one-year low of 48.9 in April. The output index fell to 48.4 in the HSBC May survey, a 13-month-low.
“The Flash China Manufacturing PMI pointed to a further deterioration in operating conditions in April, with production declining for the first time in 2015 so far,” said Annabel Fiddes, economist at Markit.
“Moreover, softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near-term, as companies tempered production plans in line with weaker demand conditions. On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required.”
Overnight, gold futures inched up on Wednesday ahead of the Federal Reserve’s release of its minutes from its April meeting, as Greece intensified pressure on its creditors to strike a deal before the end of the month.
Following the conclusion of its two-day meeting on April 29, the Federal Open Market Committee removed all calendar references to the timing of its first rate hike in nearly a decade, amid a wave of soft economic data.
Previously, the Fed abandoned its patience stance on raising its benchmark Fed Funds Rate during its March FOMC meeting – signaling that it could increase rates at some point this year. In between meetings, however, the Fed indicated that economic growth had slowed due in part to “transient factors,” such as lowering energy prices and lower import prices due to the appreciation in the dollar.
The Fed has reiterated its position that it will take a “data-driven” approach to lift-off when it is reasonably confident it has seen significant improvements in the economy. More specifically, the Fed downgraded labor conditions from improving to moderating, household spending from rising moderately to declining and business investment from advancing to softening when the FOMC last met.
Fed chair Janet Yellen is also keeping a close eye on inflationary pressures, after the FOMC described inflation as “running below” its targeted annual goal of 2% at the April meeting. After falling sharply in January, the Consumer Price Index rebounded only slightly in March – rising 0.2% from the previous month. On a yearly basis, the CPI is down 0.1% over the last 12 months.
Other measures have indicated that inflation has stabilized. Core CPI, which excludes food and energy costs, was up by 1.8% on a yearly basis in March.
Separately, the Personal Consumption Expenditure (PCE) price index, the Fed’s preferred gauge of inflation, inched up by 0.3% year-over-year in March. When the CPI for April is released on Friday, economists expect the reading to increase modestly on a monthly basis by 0.1%.
Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in periods of rising rates. A rate hike by the Fed is viewed as being bearish for gold.
