Over the next few days, we get the release of all the PMIs from China. And this is going to be really interesting!
PMIs are the most up-to-date fundamental data that the markets get. And this data was collected mostly last week.
Therefore, it will give us some good real-time data on the financial implications of the COVID-19 outbreak. It will also likely have an impact on the markets around the world.
The key thing here is that China has officially overcome the coronavirus outbreak and has been in the process of restarting the economy over the last couple of weeks.
Investors are really keen to see how China evolves now. This is because it could be the guide for other economies and how long they might take to start to recover from the outbreak.
Is it as good as it looks?
Other people are keen to have a look at the data because they want to see if the official virus figures really are what they say they are.
The logic is that the economic figures would be a better reflection of whether China actually has overcome the pandemic, and if they really are getting their economy back into shape.
Many will likely be focusing on the difference between the NBS survey (which is conducted by the Chinese government) and the privately- conducted Caixin survey.
We should keep in mind that the surveys have different parameters. So, it’s not unusual that they would be slightly different. However, that could still have a major impact on the market.
Preview for NBS PMIs
Normally, the manufacturing figure is the most important. But, investors are likely going to care more about the non-manufacturing component, since the coronavirus has had the largest impact on the service industry.
Also, that’s where the recovery is most likely to manifest first.
Projections are for the March Non-Manufacturing PMI to improve significantly to 37.8 compared to the record low 29.6 in February. Economists are a lot less optimistic about the Manufacturing PMI, which analysts expect to crash further into a record low of 4.4 compared to 35.7 prior.
Preview for Caixin PMIs
We get the manufacturing figure first. But, the services number is more likely to move the market.
Caixin surveys a higher percentage of small businesses that have presumably benefitted more from government initiatives. They’ve also got more flexibility to restart than the major state-run companies surveyed by the NBS.
Expectations are for the March Caixin Manufacturing PMI to improve to 45.6 from 40.3 prior. This is a substantial departure from the trend in the official survey.
We can expect the Caixin services PMI to actually return to expansion at 51.6 compared to the record low of 26.5 in the prior month.
Pent Up Demand or Lower Inventories
There are two conflicting theories about how consumers might react as economic measures are lifted after the COVID-19 outbreak.
One supposes an increase in sales due to pent-up demand during the crisis. This is the likely explanation for a quick return to growth in services PMI.
The other theory supposes that companies have been cutting back inventory to preserve cash. And, with the panic-buying ahead of the lockdowns, people will be holding off buying non-perishable goods.
This would be the theory for why industrial outlook might be worse even as economic restrictions are lifted.