Upcoming Chinese PMIs (NBS & Caixin)

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Contrary to other countries, this week is relatively quiet on the Chinese economic calendar.

The most important event coming up is the release of the official PMI and the private Caixin PMI survey. Both of these releases could likely move the markets.

This is also the first PMI since trade negotiations with the US were restarted … again. We’re also at the one year anniversary of the trade war, so year-on-year comparables will reference the shock in the market at the start of tariffs.

Even though negotiations have restarted between the world’s two largest economies, there hasn’t been much progress lately to encourage optimism among Chinese firms.

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What We Are Looking For

Official (NBS) manufacturing and non-manufacturing PMIs will be coming out early on Wednesday. Then, the day after, we have the manufacturing PMI from Caixin. These are the only events on the economic calendar, so we could expect to see a stronger reaction to the data.

Expectations are for the NBS manufacturing PMI to slip further into contraction territory at 49.0, compared to 49.4 in the prior month. We can expect non-manufacturing PMI to improve a bit to 54.5 from 54.2 in the prior month. This would be the second consecutive month of contraction.

Even though last month’s result might have been dismissed as a technical outlier, a drop to 49 would be confirmation that China’s outlook in the manufacturing sector has stopped growing.

The next day we have Caixin manufacturing PMI. Expectations are for this to improve to 49.7 from 49.4 last month. This would bring the figure back to being just technical contraction.

The Divergence

The NBS survey covers primarily large, state-owned companies, a significant number of which are export-oriented. By comparison, Caixin covers a broader range with a higher ponderance of small, private companies.

These have been the target of the government’s recent stimulus, and also are said to be more flexible. This could be the explanation for the divergence in the surveys (generally it’s the NBS that comes in more positive than the private one).

Smaller companies are also more dependent on the domestic market, as are service companies. While manufacturing continues to have a poor outlook, services continues to trend higher, riding on internal demand in China.

Pay Attention to the Components

Last month’s, a drop in new orders dragged down manufacturing PMIs. This happened after President Trump’s announcement to impose tariffs on Chinese goods. With that threat removed this time around, it will be relevant to see if there is a rebound in the figure.

A couple of weeks ago, we had some indicative data that provides a more pessimistic outlook for the CNY and, by extension, the major commodity currencies that supply the world’s largest manufacturing center.

Quarterly GDP disappointed projections, and retail sales in June were also lower than expected. Although industrial production continued to grow, the pace had leveled off. And a poor showing in the PMIs this time around would further a pessimistic view!

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