Global manufacturing fundamentals lead market rally, send dollar and yen plunging

Upside surprises on manufacturing data was the main story of the day and the fundamental factor that drove all higher-risk, higher-yielding markets to rally, leading to sharp losses for the USD and JPY. The upside surprises in the manufacturing sector began Sunday evening as the latest PMI data out of China, which has been moving higher the past 3-months, showed sustainable signs of growth instead of contraction.

Within minutes of the Chinese manufacturing fundamentals hitting the wires market participants began buying equities, commodities, and higher-yielding currencies like the GBP, EUR, and AUD. Further downside pressure was put on the dollar and yen after UK PMI printed at a 1-year high while Eurozone PMI showed its best improvement in 7-months. The UK PMI data was especially beneficial to lead the GBP/USD and GBP/JPY to substantial gains. Later on in the morning JP Morgan's Global PMI indicator jumped to 45.1 after printing 41.8 in April and was the biggest gain in 9-months

And finally we got US manufacturing data from ISM. Not only did ISM Manufacturing and ISM Prices show headline prints that beat market expectations, the individual components that make up these reports were very hot. In my breakdown of the data I saw that the ISM New Orders component printed at their highest since November 2007, showing a month-over-month gain of almost 4%. The Prices Paid component moved to its highest levels since September 2008, gaining 11.5% month-over-month.

With data like that, especially on the prices components within the PMI data, the markets couldn't do anything but go up. From China, to the UK, to the Eurozone, and then to the US, all of the manufacturing fundamentals were off-the-charts good and all printed with an upside surprise. This was definitely not one of those days for traders who attempted to trade against the fundamentals. But, in my view, although the fundamentals were the main driving force there was a little more to the story than just good data.