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.
What the desk is arguing
The current data on China's PMIs presents a dual narrative: a slight rebound in manufacturing activity contrasted by persistent contraction in the services sector. This bifurcated landscape suggests a fragile economic environment where recovery could be hampered by slow domestic consumption, despite manufacturing indices hinting at potential stabilization. This insight comes from ING's analysis, highlighting that even with manufacturing indices like new orders and production crossing above 50, the non-manufacturing PMI remains a cause for concern.
Manufacturing's PMI, while higher, remains below the critical level of 50, which indicates expansion. The slight uptick to 49.8 from July's 49.2 was bolstered by improved subindices such as production (50.4) and new orders (50.6). Conversely, the non-manufacturing PMI disappointed, stagnating at 49.0, as new orders in this sector fell further to a 44-month low. This juxtaposition suggests that even with a manufacturing recovery, the broader economy is still grappling with a lack of robust domestic demand, critical for a sustained economic recovery.
Where it sits in our coverage
Our consensus target for the USD/CNY pair aligns closely with market expectations, set at 1.075, with a range spanning from 1.04 to 1.12. Specific targets include:
This position illustrates a divergence where the jpmorgan estimate aligns with the desk's perspective of gradual recovery in manufacturing, while bofa adopts a more cautious stance, reflecting the persistent weakness in the services sector. The desk's view falls near the upper bound of the range, indicating an outlook that favors manufacturing improvements while acknowledging risks from the services lag.
How other firms see it
Firms such as jpmorgan and deutschebank appear to share a consensus view that China’s manufacturing sector could see a gradual improvement, factoring in potential stimulus measures. Meanwhile, bofa takes a more pessimistic stance, cautioning that the service sector's weakness could impede broader recovery efforts.
As a related watch, developments in USD/CNY will be influenced by changes in central bank policy and domestic economic indicators like retail sales and fixed asset investment. These factors will be critical as they affect overall sentiment around China's economic recovery.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Manufacturing PMI showed improvement but remains in contraction at 49.8.
- 02Non-manufacturing PMI stagnated at 49.0, highlighting domestic demand concerns.
- 03Mixed signals from PMIs suggest a complex recovery landscape for China's economy.
- 04Positive moves in manufacturing subindices may not translate into overall economic recovery.
Market implications
Traders should monitor the USD/CNY pair closely, particularly as it approaches the 1.075 level, which reflects a broader recovery narrative. Any shifts in domestic consumption metrics or additional government support could pivot sentiment significantly in the coming weeks.
Risks to this view
The primary risk to this outlook is if the weakness in the non-manufacturing PMIs continues to deepen, prompting further doubts about domestic demand recovery. Additionally, any unexpected negative data releases could undermine confidence in the manufacturing sector's stability.
Older quick take Quick take Published 03:32 China China’s PMIs remained in contractionary territory in August China's purchasing managers’ index data flashed mixed signals in August, with manufacturing rebounding and the non-manufacturing PMI holding steady. The data suggests that while industrial activity might stabilise in August, there will be no major turnaround amid slowing growth momentum Beijing, China Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Lynn Song Chief Economist, Greater China 49.8 China's August manufacturing PMI Higher than expected Manufacturing PMI beat forecasts but remained in contractionary territory China's manufacturing PMI rose to 49.8, up from 49.2 in July. This was stronger than expectations (market: 49.5, ING: 49.5) and moved closer to the neutral level.
Still, it remains in contractionary territory for a second straight month. Encouragingly, the most important subindices recovered. Production (50.4), new orders (50.6), and new export orders (50.1) all returned to expansionary territory.
We also saw ex-factory prices rebound to 50.4, the first expansion in 3 months. Raw material prices rebounded to a 3-month high of 56.6. After last month's softer-than-expected industrial production data, the data suggests we might see a modest uptick when the August data is released in a few weeks.
Key subindices rebounded to expansionary territory in August Non-manufacturing PMI disappoints The non-manufacturing PMI remained unchanged at 49.0, disappointing market expectations (market: 49.4, ING: 49.4) for a slight recovery. The subindex breakdown was generally unfavourable. New orders fell further to a 44-month low of 44.1, and orders on hand (42.8) fell to a 4-month low.
New export orders (47.0) and employment (45.4) remained unchanged on the month. Input prices, meanwhile, rose to 51.1, the first time above 50 in 3 months. Because China's services sector is primarily domestically focused, this suggests domestic demand remained relatively sluggish in August.
Policy support announced over the past month appears focused on interest subsidies. As positive impacts may be relatively marginal, more measures are expected in the weeks ahead. For now, the PMI data suggests that we are due for another month of relatively sluggish domestic activity data in August, with any potential rebound likely to be limited.
Non-manufacturing PMI stagnant as new orders fell to 44-month low PMI China Asia Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take
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