China PMIs return to expansion territory, signalling modest growth uptick
At a Glance
The desk interprets China's recent PMI data, which indicates a return to modest growth, as a potential support for the yuan in FX markets. The manufacturing PMI has moved up to 50.1, while non-manufacturing has impressively reached 50.2, suggesting an uptick in economic activity that signals resilience amid a challenging environment. Per the full note from ING, these indices reflect improvements in production and prices, notwithstanding persistent weaknesses in domestic demand. Given the central bank's pivot towards supportive measures, the outlook appears cautiously optimistic.
Key Takeaways
- 01China's manufacturing PMI returns to growth, suggesting economic resilience.
- 02Non-manufacturing PMI shows unexpected strength, indicative of potential recovery.
- 03The divergence in economic performance may support the yuan's valuation moving forward.
- 04Given price pressures, the manufacturing sector appears crucial for growth.
Full Analysis
What the desk is arguing
The recent rise in China's official manufacturing PMI to 50.1 and non-manufacturing PMI to 50.2 suggests a rebound in economic activity, signaling a cautious but encouraging outlook for the yuan. According to ING, this growth, albeit modest, reflects a potential shift in momentum that could aid the currency’s valuation.
The subindices reveal that production has risen to a high of 51.7, while pressures from higher raw material prices may also support an economic recovery. Despite ongoing challenges in domestic consumption, the PMIs indicate that manufacturing remains a relative strength within the economy.
Where it sits in our coverage
Our current consensus target for USD/CNY stands at 1.075, with a range of 1.04 to 1.12. Notably, firms are divided, with jpmorgan targeting 1.10 for the March 2026 tenor and bofa suggesting a more conservative stance at 1.04 for the same period.
This desk's view leans towards the upper bound of this range, in contrast to the position adopted by bofa, which reflects a more cautious outlook.
How other firms see it
In general, firms aligned with a bullish perspective on the yuan include jpmorgan and dbs, while those with a bearish stance include bofa. This divergence suggests that the market remains split on the impact of improved PMIs on currency dynamics.
Traders should keep a close eye on the performance of related currency pairs such as AUD/CNY and EUR/CNY as key indicators of sentiment that could either reinforce or challenge this thesis.
Market Implications
Watch the USD/CNY pair, particularly around the 1.075 level, as it may signal the strength of the yuan following this positive PMI data. Given no high-impact events on the calendar, sentiment could be influenced by market positioning in response to economic forecasts.
From the original
Older quick take Quick take Published 03:40 China China PMIs return to expansion territory, signalling modest growth uptick China’s official manufacturing purchasing managers’ index rose back into expansion territory at 50.1, while the non-manufacturing PMI showed a s
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The desk posits that while China's manufacturing PMI has shown some signs of recovery, it does not signal a broader economic turnaround, with potential policy implications stemming from sluggish domestic demand. Per the full note from ING, the June PMI rose to 50.3, slightly better than market expectations of 50.1, yet suggests that a second-quarter slowdown remains probable. This mixed data could lead to expectations for increased policy support ahead of the July Politburo meeting, indicating a more cautious outlook among traders ahead of upcoming policy decisions.
China’s PMIs remained in contractionary territory in August
The desk sees the August PMI data as a mixed bag that underscores ongoing challenges for China's economy, with the manufacturing sector showing slight signs of stabilization while the services sector remains weak. Per the full note from ING, the manufacturing PMI improved to 49.8 from 49.2, slightly exceeding expectations but still in contraction. The desk emphasizes that while there are positive signals in manufacturing, particularly in new orders and production, the stagnant non-manufacturing PMI at 49.0 indicates underlying weaknesses in domestic demand that cannot be ignored.