US dollar and equities are feeling the gravity from a far worse-than-expected US manufacturing PMI reading overnight; which suggest a fast deterioration in the fundamental picture as global demand weakens and trade risk prevails.

The reading came in at 47.8, well below the threshold of 50.0 that separates expansion and contraction, and also below economists’ forecast of 50.1. The manufacturing sector accounts for about 10% of US GDP.

What shocked investors is the rapid pace of decline of US manufacturing sentiment.  The reading in April this year was at 55.3 and within six months, it has tumbled to 47.8.  The PMI reading has missed five out of the last six months, deepening fears of a global recession.

Weakness came from new export orders, which has slowed down to a reading of 41. This has brought trade tariffs back to the top of the agenda, pressuring President Trump to close a trade deal with China as soon as possible to avoid further economic pain.

Weak data also shed some light on Fed rate cuts down the road, sending the US dollar lower against its G10 peers. EUR/USD rebounded to 1.0938, but overall still traded within a well bounded down trend in its day chart. AUD/USD erased some losses overnight after falling as much as 1% yesterday after the RBA rate cut. AUD/USD traded at 0.6713 this morning and its overall trend remains bearish.

US equities fell over 1.2% on average overnight and Asian markets are likely getting a hit today. Singapore’s STI opened 0.6% lower with a broad decline in various sectors except for REITs, which is cushioned by rising rate-cut expectations.

Gold price rebounded to US$ 1,479 from US$ 1,459 overnight, lifted by a weaker dollar and rising economic uncertainties after the release of the US data.

This Friday’s non-farm payroll reading is now more crucial to unveil the healthiness of the US job market in a wake of slumping external demand and fading domestic consumer confidence. Jobs reading is also a key measure the Fed uses to decide monetary policies. Forecast for the non-farm payroll is 145k.

US ISM Manufacturing PMI

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