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The latest reading of Manufacturing PMI showed a rise in activity for March compared to February. The 55.3 reading for March was better than the expected reading of 54.5 and February’s 54.2 level.

The Data

According to Trading economics, the March reading showed faster increases in new orders, production and employment. These increases offset a slowdown in other components including inventories, order backlogs, new export orders and supplier deliveries.

16 out of 18 manufacturing industries showed growth including printing and related support, tobacco, food & beverage, petroleum, coal, computer and electronics, appliances and components, electrical equipment, furniture, chemicals, plastics and rubber, non-metallic minerals, wood products, transportation equipment, fabricated metals, machinery, primary metals, and miscellaneous manufacturing. The only two areas that showed a contraction were leather and allied products and paper products.

Key Takeaways

This report, along with some encouraging data out of China have reignited some risk appetite while lessening fears over a global slowdown. The better-than-expected March Manufacturing PMI reading is especially important, as it showed a nice bounce back from February’s reading which represented a two-year low.

As appetite for risk increases today, stocks are on the move higher. The benchmark S&P 500 index is up over 23 points or .83 percent as investors continue to buy after a strong close last week. Now that the highly anticipated Mueller report is in the rear-view mirror, investors will focus their attention on market fundamentals, including the ongoing U.S./China trade negotiations and the recent inversion of the yield curve.

The Fed will also be an area of focus as it has done a complete U-turn in recent months. The central bank recently changed its tune again and there are currently no rate hikes on the table for 2019. Some have even suggested that the central bank could be forced to start cutting rates again if the slowdown continues. White House Economic Advisor Larry Kudlow recently suggested that the Fed should cut rates by a half-point “immediately.” The Fed will likely take a wait-and-see approach as more data inputs come in before making any key decisions.

Market Reaction

With stocks sharply higher in early action today, the gold market is drifting slightly lower. Spot gold was last down $3.33/oz at $1289.67. Recent price action has seen the market again fail at previous resistance and prices have returned to their previous trading range. Any declines into the $1280-$1290 area may be aggressively bought as bargain hunters step in to buy the dip.

The stronger dollar has been a major factor in gold’s lack of upside follow-through in recent weeks and the currency could potentially have more room to run higher. Further gains in the greenback may, however, prove to be limited as the Fed becomes increasingly dovish and as recession risks rise further. The gold market may simply bide its time in the recent trading range until the dollar breaks down or equity markets show clearer indications of a long-term top being reached.