Over the weekend: China PMI

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One of the more anticipated data bits from this weekend is scheduled for release early on Sunday. This will be the official PMI data from China.

With so much speculation around potential world economic weakness, the first insight into Chinese performance during the first quarter will be very interesting to analysts, traders and economists. While chiefly related to the yuan, we could see broader implications of this data to other currencies.

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What’s Coming Up

We can expect the official NBS manufacturing and non-manufacturing PMI for China to come out at 03:00 CET on Sunday. This will be 21:00 EST on Saturday (bearing in mind Europe begins daylight savings time concurrently with the release), while markets are closed.  And it will be several hours before we see a reaction later in the Monday Asian open.

The consensus among analysts is that China’s manufacturing PMI will register the fourth consecutive month of contraction in PMI data. However, they anticipate a slight improvement at 49.6. This would be up from the 49.2 registered previously (note that the prior month can be revised along with the release).

Expectations are for non-manufacturing PMI stay comfortably within growth territory. However, they may slip a bit to 54.1 from February’s 54.3 (this figure has been positive since March of 2012). While this is still an important data point, the market reaction is likely to focus on the manufacturing segment, and especially its components.

The Data is Extra Important This Time Around

Around the weekend, we have the largest economies of the world reporting their PMI’s, with Europe, the US, and China representing over 65% of the world’s economy. The consensus is that there will be broadly weaker results for March, which would close out a disappointing first quarter for the year.

Worries are that Europe is heading for a technical recession. This could reflect itself in China’s performance, as around a billion dollars of trade goes between the two economies each day. This would put more pressure on the Asian giant’s economy, which is already not in the best shape given the pending tariff issue with the US.

The Lunar New Year distorted last month’s PMI data. Companies at the time stocked up ahead of the week-long closure of major businesses. So, the March data may, therefore, be more of a “return to normal”.

We talked previously about how China is pivoting away from exports towards shoring up its domestic market. This helps explain the discrepancy between manufacturing and non-manufacturing. The Chinese government continuing to commit to more internal stimulus in the future. And, as the government’s growth forecasts seem harder to achieve, we could expect that divergence to maintain.

The Exception

Of the major economy PMIs coming out, analysts have speculated that China might be the exception, surprising on the positive side. This is due to private surveys done ahead of the results. Additionally, the official number surveys a preponderance of state-run businesses. These often provide a rosier picture than the private Caixin survey, scheduled for next week.

The markets will take an interest in the new orders component, which showed a surprise up-tick back into growth territory last month. Current expectations are for it to slip back into negative, reflecting a depression in future demand. However, a surprise on the upside with this component might outweigh the headline number.

In the interest of tracking potential for recessions, some analysts are eyeing with concern the increasing inventories in China. However, the companies stocking up ahead of the Lunar New Year could again, explain this, in addition to trade concerns.

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