Upcoming Chinese PMIs (NBS and Caixin)

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The last week of April is setting up to start off with a bang!

Recent press speculation has pointed to a date being set for Trump and Xi to sign an agreement that would put an end to the nearly year-long trade war. Meanwhile, we are about to receive the highly anticipated release of Chinese PMI data. This will include both the official and private publications.

These will be coming out on the same day, right after each other! The data has broad implications for a wide range of currency pairs and commodities.

Also of note is that the next day after the release of this data, China, as well as a significant portion of the world’s economies and trading centers, close for a holiday.

So here are some things to keep in mind when setting up your trades overnight.

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What’s Coming Up

The session starts with the publication of the official NBS manufacturing and non-manufacturing PMI at 03:00 CET (which would be the day before at 21:00 EST). Unlike last time, the markets will be open during the release. So we could have some volatility across the board in response to the results.

Expectations are for manufacturing PMI to register its second result in expansion territory at 50.8.  This would be a slight improvement over the 50.5 prior. Remember that revisions for the prior month are possible. And with a number so close to contraction, a revision on the downside could have some serious implications.

Last time, analysts were caught by surprise with a sudden rebound off of a three year low. And a slight withdrawal as a correction wouldn’t be all that unexpected. However, that month included the first signs of progress in trade negotiations. And news since then has remained only positive. This could be the factor in raising the outlook component of the PMI so that it returns to expansion.

Analysts project non-manufacturing PMI will remain firmly in expansion territory, though slip slightly to 54.5 from 54.8. The continued strength of this sector is explained by the stimulus from the government towards the domestic economy.

Next, and just 45 minutes later, we have the release of the Caixin manufacturing PMI. This tracks a shorter range of companies that are smaller and more export-facing. This leads to it traditionally having a less positive result. The consensus among expectations is that it will slip back into contraction at 48.9 from the surprise 50.8 registered prior. The result can be explained, in part, by the “correction” mentioned previously.

The markets, and the lack of economic growth

Despite the prospect of a near-term deal on the trade front, expectations for growth from China remain muted. This is even true at the official level, where the government has pledged to supply even further stimulus. China seems to be caught between the diverging fortunes of the EU and the US. The former is slipping closer to technical recession while the latter grows lustly. In fact, corporate earnings so far this quarter have emphasized this pattern. Major businesses in the US have been reporting strong growth in profits, while EU companies continue to struggle.

Last time around, the Chinese PMI was the bright spot of the monthly releases. But many analysts are pointing out that this might shape up to be an exception, especially if there is a divergence between the NBS and Caixin surveys, showing that the positivity in the outlook comes more from government stimulus than underlying growth.

With the projected divergence in the PMIs, we could have some extra volatility as the market digests what’s on the surface contradictory data. However, a further rise in Chinese PMI would help support further risk appetite.

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