China January PMI and Latest Developments

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The next major data from China to hit the markets is scheduled for Thursday at 02:00 CET (or Wednesday at 20:00 EST) which is the official NBS manufacturing and non-manufacturing PMIs for January.

This could give us some volatility across many currency pairs, so here are some things to keep in mind in the lead up to the event.

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The Scenario

China’s economic growth has been slowing down, though still going quite fast at 6.6% annually in the latest report. However, as we mentioned a couple of days ago, China is acknowledging that there has been some negative impact on the economy from the ongoing trade war, even though some of the slowdown had been registering before the tariffs went into effect.

While economic growth, at least in official statistics, remains resilient, the manufacturing sector hasn’t been so lucky.

Chinese manufacturing is a key indicator both for other countries that supply raw materials to the Asian giant such as Australia, as well as the impact on commodities from countries like Canada and Norway. And the trajectory hasn’t been so positive lately.

Last month, manufacturing PMI came in below expectations, and crossed into contraction territory for the first time since early 2016. The index has been in a downward pattern since May of last year.

The Pivot

Of course, the trade issues have solidified China’s determination to pivot towards its domestic market and away from reliance on manufacturing. This showed when comparing the non-manufacturing PMI data last month, which actually increased (albeit from a 15-month low), and has managed to stay well above contraction for close to a decade.

Nevertheless, it should be noted that the subsector of the index for new export orders continued to decline and slipped into contraction at 49.0, which is following the trajectory of factory orders. Although Beijing insists that the effects of the trade war have been minimal, the data tells a somewhat more complex story.

In terms of business outlook, non-manufacturing remained high at 60.8 points, when compared to 52.7 among the manufacturing sector. Services now account for more than half of China’s GDP, which means that the relationship between Chinese economic growth and commodity demand might be getting weaker.


NBS Manufacturing PMI for January is expected to continue to remain in contraction, with a forecast to slip a further decimal to 49.3.

Non-manufacturing PMI for January is expected to not only remain in growth territory, but increase a further decimal to 53.9.


China’s Vice Premier is already in Washington to continue trade talks, with reports that he’s planning to offer substantial increases in buying of agricultural goods from the US and “minor” concessions on manufacturing. The key issue over intellectual property, however, remains unmentioned.

The issue of a Chinese executive of Huawei detained in Canada, with the US formally asking for extradition, is officially being treated as a separate issue from trade talks. However, it’s a further wrinkle in the relationship to add to China’s disapproval of the US sailing a warship through the Taiwan Straits.

The PBOC continues to be concerned about the price of the yuan, and recently announced that it would issue further offshore bonds to support the currency.

Next week is the Chinese lunar New Year which sees the largest migration of people in the world, with everyone travelling to visit relatives. However, this also means that markets are closed for almost the entire week in China and many other far-east markets.


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