What to Expect from December Chinese PMIs

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Asian markets are set to finish the year with a bit of a bang. We have some especially interesting data coming out on the last day of the year. Chinese PMI data is expected to get extra attention. This is because it’s the first economic measurement that we have since the signing of the “Phase I” trade deal.

With many traders in the US and Europe away from their desks for the holidays, the market could have an unusual and stronger reaction to the data. Some analysts might wait until Thursday when markets start returning to normal. On this day we get the private Caixin survey and have a fuller view of what’s going on in the Chinese economy.

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What we are Looking for

Tomorrow we have the publication of the “official” NBS PMI survey, with the market focus on the manufacturing component. Expectations for December manufacturing PMI for it to slip technically back into contraction at 49.8 from being technically in expansion at 50.2 last month. The measure has spent most of the year just barely below the contraction level. This means that this wouldn’t be a significant deviation from the norm.

More importantly, if NBS Manufacturing PMI doesn’t stay in growth territory, it would be a sign that most major businesses in China are not all that optimistic about the positive effects of the tariff ceasefire. These are the major buyers of commodity products from Australia. We could see AUD remaining under pressure in this scenario

The Other Data

At the same time, we also get NBS non-manufacturing PMI. This is expected to pull back a bit following the jump it had last month. Projections are for 53.6 compared to 54.4 in the prior reading. However, this would still be a reversal of the trend that the domestic economy has been following since almost the beginning of the year. Generally, the NZD is closer associated with the Chinese domestic economy. This is because of the export of consumer products.

Then on Thursday, we have the Caixin Manufacturing PMI. This is expected to decline slightly to 51.7 from 51.8. This would show that smaller businesses aren’t all that impressed with the new trade situation.

Residual Effects

Prior month’s PMIs were likely affected by the anticipation of the Phase I deal since it was broadly telegraphed by the authorities. Not getting a strong upswing in sentiment isn’t all that surprising, since we already had a significantly more upbeat reading last month.

Though also when the survey was conducted, the practical effects in terms of which tariffs would be reduced by how much hadn’t been revealed. That could have tempered some of the initial optimism. Additionally, with many of the key traders on break, some of the analysts might not have their finger on the markets’ pulse as well as they normally do.

Expect the unexpected when it comes to the markets before the end of the year.

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