Gold fell to new 10-week lows following further troubling signs of an economic slowdown in China. HSBC/Markit Flash manufacturing PMI fell to a 4-month low of 48.1 in Mar, tempering expectations that China will experience a “soft landing”. Given China’s voracious appetite for commodities, heightened growth risks tend to weigh on the complex. While gold is unquestionably seen more as money in China, rather than a commodity, lower commodity prices diminish inflation expectations and therefore the yellow metal’s appeal as a hedge.

Recent PMI data also suggests Europe has fallen back into recession. Big misses in eurozone industrial orders and UK retail sales, lend additional weight to a broad retreat in commodity prices. However, at the same time, the greater risk of deflation increases the likelihood of further accommodative measures on the part of global central banks.

As we’ve discussed many times in the past, central banks — most certainly the Fed — view deflation as a far greater threat than inflation. Many central banks in the developed world have pledged to create inflation in order to keep deflation at bay. That means that they will pump additional liquidity into the system, likely via quantitative measures, to accomplish their goal. You may recall a couple weeks ago, the Fed restarted dropping hints about QE3 when the stock market fell by a mere 1.5% in a single day. Well, rising global growth worries are once again weighing on shares.

• US leading indicators +0.7% in Feb, above market expectations of +0.4%, vs negative revised +0.2% in Jan.
• US initial jobless claims -5k to 348k in the week ended 17-Mar, below expectations of 350k, vs upward revised 353k in previous week.
• Canada retail sales +0.5% in Jan, well below market expectations of +1.6%, vs upward revised unch in Dec; ex-autos -0.5%.
• Eurozone Markit PMI – Composite – Flash falls to 48.7 in Mar, below expectations of 49.5, vs 49.3 in Feb; manufacturing 47.7, services 48.7.
• UK retail sales -0.8% m/m in Feb, below expectations of -0.4%, vs negative revised 0.3% in Jan; 1.0% y/y, vs negative revised 1.4%.
• Eurozone industrial orders (sa) -2.3% m/m in Jan, vs positive revised 3.5% in Dec; -3.3% y/y, vs -0.4% in Dec.
• Eurozone flash consumer confidence -20 in Mar, in-line with expectations.
• China HSBC/Markit Flash Manufacturing PMI falls to 48.1 in Mar, vs 49.7 in Feb.
• Taiwan Central Bank holds discount rate steady at 1.875%, in-line with expectations.
• Taiwan unemployment rate (sa) eases to 4.15% in Feb, vs 4.19% in Jan.
• Hong Kong CPI (Composite) moderates to 4.7% y/y in Feb, vs 6.1% y/y in Jan.

James Clark

James Clark is the editor of Originally from Melbourne, he has been a digital nomad since 2003, running a location independent business while travelling the world.