Australia’s S&P Global Manufacturing PMI fell to 51.5 in February, down from 52.3 previously.
A reading above 50 shows expansion, while below 50 shows contraction.
Manufacturing Momentum Slows
This morning’s Australian manufacturing PMI shows slower growth, with the index falling to 51.5. Manufacturing is still expanding, but the drop points to weaker momentum and a cooler economy. We should adjust our positions to reflect higher downside risk in the coming weeks.
After the strong ASX 200 rally in the final quarter of 2025, this data supports taking some profits. We should consider buying put options on the index to hedge against a pullback in industrial and materials stocks. Selling out-of-the-money call spreads may also work well if upside looks limited.
The Australian dollar also looks more exposed, especially versus the US dollar. The Reserve Bank of Australia kept the cash rate at 4.35% earlier this month, but softer data increases the chance of a more dovish message or a future rate cut. It may make sense to position for a weaker AUD using futures or options, as the rate advantage that supported the currency could fade.
Weaker manufacturing at home can also weigh on commodity prices, especially iron ore. This matters more because China’s official manufacturing PMI was recently 49.2, which signals contraction in our largest export market. Derivative trades that benefit from falling key industrial commodity prices now look more attractive.
Overall, this PMI result adds uncertainty, so volatility may rise. Options strategies such as straddles can help trade a move higher in market swings. We also expect interest rate futures to price in a higher chance of an RBA pause. We can position for that by buying Australian government bond futures.
Portfolio Hedging Considerations
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