China Manufacturing PMI Drops to Record Low As Coronavirus Takes Toll

China Manufacturing PMI Drops to Record Low As Coronavirus Takes Toll

The coronavirus outbreak appears to have taken a massive toll on China’s economy, as the February 2020 China Manufacturing PMI came in at a record low of 35.7 (versus the 45.1 consensus reading), a huge drop from the 50.0 reading for January. 

Similarly, the Non-Manufacturing PMI came in at 29.6 (versus a consensus figure of 51.4), sharply lower than the 54.1 reading for January. 

The record low China Manufacturing PMI reading indicates what the global markets had feared all along: there has been a massive plunge in factory activity as a result of the coronavirus outbreak. This PMI reading shows the real impact the coronavirus outbreak is having on factory activity in China, as entire industrial complexes remain shut due to government-enforced quarantines and operational ones find it hard to recruit workers. 

Market analysts are expecting the impact of the coronavirus outbreak to last well beyond the end of the epidemic; whenever that will be. 

The start of the global financial crisis in 2008 was the last time the PMI figure came in at a record low (38.8). Today’s number beats that record. The Caixin Manufacturing PMI is due for release by 1.45 am GMT on Monday. 

Read our Best Trading Ideas for 2020.

Technical Outlook for Gold Price (XAUUSD)

The record low reading of the China Manufacturing PMI looks set to induce further risk aversion in the financial markets. 

Gold sold off on Friday as companies and institutional investors took profits to balance their end-of-month accounts. I would expect a resumption of safe-haven demand for this asset when the markets open for the week. A trace of the Fibonacci retracement level from the swing low of 12 Nov 2019 to the swing high of 24 Feb 2020 shows that Friday’s selloff ended at the 50% retracement level (1567.84) with a solid bounce. Buyers may decide to seek a good support area to reinitiate safe-haven demand. 

An extension of the bounce targets 1596.59 initially, with 1632.16 (23.6% Fibonacci level) serving as another upside target if demand is good. 

On the flip side, the price may look for lower support from present levels before initiation of further demand, causing the gold price candle to target the 1567.84 price level. This move may take strength from the ascending trendline which connects the lows from 13 Jan 2020 to Friday’s low), or the support zone which extends from 1534.75 (4 Sep 2019 and 14 Jan 2020 lows) to the 61.8% Fibonacci retracement line of 1539.09.

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