Gold simply refuses to stop hitting new highs. Yesterday marked the latest step on the record-breaking path, which saw the precious metal reach highs of $2,685 per ounce on the intra-day. There are a number of bullish arguments for bullion at the moment, as central banks around the world begin to cut interest rates in earnest, with the promise of more to come. Silver also made a bold move on Thursday, stepping up to $32,71 an ounce before settling lower. Traders would have to go all the way back to 2012 to see those same prices.

Another factor is of course the recent stimulus package courtesy of the People’s Bank of China, which is also working wonders for the Hang Seng Index, which surged over 4% yesterday to levels not seen since August of last year.

In the US, the S&P 500 index closed 0.4% higher on Thursday to a new record high of its own. The Dow Jones Industrial Average and Nasdaq Composite also fared well thanks to better-than-expected economic data, both gaining around 0.6% on the day. The record-breaking trend even extended to Europe, where the German DAX also hit an all-time high after climbing 1.7% over yesterday’s session.

The week is not over yet however, later today the PCE price index will attract a decent amount of attention, not least from the Fed itself. If proposals for further rate cuts are to be believed then the latest batch of inflation data will certainly factor into future decisions.

The People’s Bank of China surprised markets with an unusually large stimulus package yesterday. The measures include sizeable injections of capital as well as a reduction in lending rates across the board. The package is the biggest intervention from the central bank since the pandemic and comes in light of disappointing economic data. Among other aspects of the Chinese economy, the measures specifically target the real estate sector, which has weighed heavily on market sentiment over the last few years. The Hang Seng Index has made significant gains recently, surging over 10% in the last two weeks alone. The Renminbi has also strengthened considerably against the Dollar, touching 7.02 this morning.

The promise of extra liquidity no doubt helped the movement in gold yesterday, which saw prices reach a new record high of $2,657 an ounce. The precious metal is now up almost 30% year to date. For once, the bullish action extended to silver, which breached $32 an ounce and is now just under yearly highs.

Potentially busy trading sessions on Thursday and Friday, with the economic calendar beginning to look quite crowded. The Swiss National Bank kicks things off with its interest rate decision tomorrow, followed by a slew of data out of the US, including Q2 GDP, jobless claims and a speech from Fed Chair Jerome Powell. The focus remains on the US on Friday with the publication of the PCE price index. Although the Fed has already clarified its path forward, the index remains an important factor for future monetary steering.

Markets finally settled down on Friday after a volatile week. Some traders were probably grateful for the day off. While the impact of a 50 basis point cut will take some time to materialise, debate surrounding the Fed’s decision is already in full throttle. The cut was larger than first expected, which raises the inevitable question of whether Federal Reserve board members are concerned about a slowdown in the US economy.

We may have an answer to this as early as today, with the release of manufacturing and services PMI figures, not just in the US but in the UK and Europe as well. Australia published its own indices this morning; manufacturing coming in at 46.7 and services at 50.6; both a sizeable step under expectations. Oil forecasts also back up the idea of a global reduction in industrial output. Of course, an argument could be made that the greater rate cut is in fact the result of the Fed dragging its feet earlier in the year and is only now catching up. As an aside to all of this, markets will soon have to contend with the next US presidential election on the 5th of November – a mere six weeks away.

In the end, the only asset to not hold back was gold. The precious metal gained $35 on Friday to breach $2,600 an ounce and clock yet another record high.

Looking at the economic calendar, besides the aforementioned PMI figures, traders will have to wait until later in the week for some of the more substantial data publications. On Thursday, the Swiss National Bank is expected to cut rates on the Swiss Franc down to 1%. Later in the day US GDP and jobless claims are set to grace the newswires, followed by a speech from Jerome Powell. The PCE price index closes out the week on Friday.

Open up the economic calendar and chances are you will see some mention of manufacturing PMI data. They typically attract the same attention as other publications such as GDP, employment figures, inflation numbers and the like. But what exactly is a manufacturing PMI?

PMI stands for Purchasing Managers’ Index. A PMI is a diffusion index, which is a tool used in economics to evaluate the general trend of a series of data points. It works by looking at the direction of each component in a group and then telling us what the overall direction of the group is.

For example, let’s take a group of ten businesses to evaluate their overall growth trend. Nine report a 10% reduction in activity; one reports a twofold increase. In this instance, calculating the average growth would give us a positive figure, which is true, but ignores the fact that most of those businesses are in decline. A diffusion index on the other hand would instantly let us know that the overall trend is firmly negative.

In the case of the manufacturing PMI, the figure is calculated according to the following formula:

                                                                                       PMI = [G × 1] + [NC × 0.5] + [D × 0]

Where:

G: Percentage reporting growth
NC: Percentage reporting no change
D: Percentage reporting decline

How are the above data collected? It is actually as straightforward as asking people in key industrial positions what they observe, typically on a monthly basis. A PMI is essentially the result of survey data. A corporation or government body will contact senior executives working at hundreds of companies across all sectors of industrial activity and ask them for specific information about their company’s performance.

The information in question revolves around new orders, inventory levels, production output, supplier deliveries and finally employment within the company. Once everything has been collected, the overall PMI figure can be calculated based on the number of businesses reporting growth, contraction or simply no change at all. A PMI above 50 indicates a sector in expansion; a PMI below 50 indicates a sector in contraction.

You may be forgiven for thinking that the above methodology does not sound very scientific or objective. There will obviously be errors involved, inaccurate information, inherent biases on behalf of the reporting staff etc., not to mention the fact that the companies surveyed may not necessarily reflect broader industrial trends. On top of that, the exact way of collecting and processing the data may vary from country to country. These problems are by no means limited to PMI data by the way. For example, inflation and employment statistics face the same hurdles and often undergo significant corrections in the months following publication.

If anything, PMI figures are some of the more reliable on the economic calendar. It is a relative measure after all; the question really boils down to “is this month better or worse than the previous one”. Given that they provide new information relating to industrial trends, PMI data are considered leading indicators, offering insights into the economy before they manifest in the labour market or in GDP figures for example.

The credibility of PMI figures is further bolstered by the fact that huge entities such as S&P Global publish such data on an international scale, harmonising the process across many different areas of the world. Indeed, S&P Global covers 45 distinct economies, allowing for more consistent comparisons to be made between different countries.

Many countries will have several different bodies that calculate PMI data, such as the Institute for Supply Management in the US for instance, which publishes alongside the S&P Global but uses a slightly different methodology. In China, the National Bureau of Statistics and Caixin Indices both convey PMI data, with the former focusing on larger and state-owned enterprises and the latter being much broader in scale.

Of course, a PMI is not limited to the manufacturing sector. Similar calculations are made for other areas of the economy, such as the service or construction sectors. Services are in fact a much larger contributor to GDP than manufacturing, particularly in developed countries, so why the focus on manufacturing? Tradition is a large part of it; the manufacturing PMI dates back to the 1940s and predates the service index by half a century. It is also considered the more concrete of the two, given the more nebulous nature of the service sector. Fundamentally, most of us probably attribute more value to building airplanes than to ordering cappuccinos from each other, a stance which underlies much of the criticism of the aforementioned GDP figures. Whatever the reason, manufacturing PMIs remain a staple of the economic calendar and this is unlikely to change.

Stocks rejoiced yesterday following the Fed’s move to lower the target interest rate on the Dollar by half a percent. The three major US indices opened high on Thursday after markets had had more time to digest the decision. The Dow Jones and S&P 500 both struck record highs, closing 1.3% and 1.7% higher respectively. The Nasdaq Composite meanwhile gained 2.5% on the day but remains somewhat adrift of its July peak.

The prospect of a more liquid Dollar spurred on commodities, pushing gold up 1% to $2,586 and nudging silver over $31 an ounce. Oil markets are also enjoying some respite, with West Texas Intermediate in particular climbing back to $72 a barrel and Brent Crude up to $74.

Moving on to currencies and the picture is as one might expect. The Dollar experienced a healthy dose of volatility over the past two sessions but now seems to be coming to terms with the news. The DXY lost 0.3% on Thursday and is now languishing around its yearly lows. On the other side of the pond, the Bank of England elected to maintain the 5% interest rate on the Pound during yesterday’s meeting, which helped push Cable up to $1.33. This morning, the Bank of Japan followed suit, keeping rates on the Yen at 0.25% as expected. Japanese officials made an effort to reassure markets after the drama caused by the last rate hike, stating that further adjustments would not occur until markets stabilise.

All quiet ahead of the Fed’s interest rate decision later today. There has been a last minute pivot away from predictions of a 25 basis point cut in favour of a more bold 50 bps reduction in the target rate. FedWatch is now pricing the larger cut at a 65% probability. The reasons for the shift aren’t clear and markets have been very timid so far this week, so no clues there.

The Dow Jones edged out another record high on Monday after a 0.55% rise, but overall US indices are in wait-and-see mode until the Fed makes up its mind. The same can be said for currencies; the Dollar fell on Monday, with the DXY losing the 101 level, only to reclaim it the following session. Traders can expect some degree of volatility both before and after the announcement, by the looks of things a lot of market participants are staying out of the game until then.

Gold also eked out another record high on Monday, climbing a few Dollars just for the sake of it before closing half a percent lower on Tuesday. Oil has finally showed some strength, with Brent and WTI up around $5 a barrel since last week’s lows, although once again there doesn’t appear to be an obvious reason as to why. It will be interesting to see how cryptocurrencies react to the Fed interest rate decision later today. Crypto markets have been uncharacteristically boring recently, with BTC hugging $60k and Bitcoin dominance at yearly highs of 58%.