China’s NBS Non-Manufacturing PMI dropped to 49.4 in January, missing the expected 50.3. This number indicates a contraction in the non-manufacturing sector since readings below 50 show reduced activity. The USD is gaining strength due to Warsh’s nomination to the Federal Reserve and higher-than-expected U.S. Producer Prices. Gold prices rose above $5,000 after profit-taking and a stronger dollar.

Stellar Hits Three-Month Low

Stellar’s value fell to a three-month low below $0.20. This decline is due to negative funding rates and a dip in Open Interest, while momentum indicators suggest more downward movement may occur. Following its earnings report, Microsoft saw its market value drop by $400 billion. Meanwhile, Bitcoin, Ethereum, and Ripple experienced weekly drops of about 6%, 3%, and 5%, respectively. Bitcoin is nearing a low of $80,000, and Ethereum is below $2,800, highlighting ongoing negative market trends. In the currency markets, EUR/USD fell below 1.1900 as the U.S. dollar strengthened, while GBP/USD dropped close to 1.3700 amid increased selling pressure. Ongoing speculation about the Federal Reserve’s leadership is influencing market activity.

China’s Service Sector Shrinks, Affecting Global Markets

New data reveals that China’s service sector unexpectedly shrank in January, with a PMI of 49.4 instead of the anticipated 50.3. A reading below 50 indicates contraction, not just a slowdown. This serves as a warning about the state of the world’s second-largest economy as 2026 begins. This report suggests immediate weakness for industrial commodities that rely heavily on Chinese demand. Copper prices have already fallen over 3% this month, dropping below $8,400 per tonne, making them susceptible to further declines. Considering shorting copper futures or buying put options on mining sector ETFs might be wise in the coming weeks. Currencies linked to commodity exports, particularly the Australian dollar, are likely to lose ground. We saw the AUD/USD pair sharply decline in the third quarter of 2025 due to similar worries about China’s economy. This historical trend indicates that buying put options on the Aussie dollar could be an effective strategy given the current news. The repercussions are expected to impact global equity markets, especially European indices with significant exposure to China. For example, Germany’s DAX index fell 1.5% in one day last year after a disappointing Chinese industrial production report. This suggests that investors may want to hedge long positions or consider shorting indices closely tied to China’s economy. Overall, China’s contraction signals a risk-off sentiment in the markets, typically boosting the U.S. dollar. The U.S. Dollar Index (DXY) has risen nearly 2% since the year began, and this development serves as another reason for its increase. It’s likely that long dollar positions against growth-sensitive currencies will remain a smart trade. Create your live VT Markets account and start trading now.

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