China so far has given every appearance of a V-shaped recovery after officially getting a handle on the COVID-19 outbreak in February.
Of course, at the time, the outlook was bleak. But, a month later, corporate expectations jumped back almost as high as they were before the pandemic. Both the government official and private Caixin PMI surveys were comfortably in growth territory.
However, the virus spread around the world, impacting demand due to business closures. This could, therefore, see China experiencing a “second wave” of economic impact.
Even with a substantial amount of the economy turning towards domestic demand, the world’s second-largest economy is still dependent on exports.
This is the last major data from China ahead of the extended four-week May Day holiday.
A lot can happen in that short period of time, and with markets still uncertain over potential COVID developments, flight to safety might still overcome any potential upside if the data beats expectations.
Of course, Chinese PMI data is also very important for AUD, NZD, and JPY. But we could have an uneven market reaction.
COVID cases are still on the rise, if at a comparatively low level, in Japan. There are increasing worries that more social distancing measures might be needed in the future.
On the other hand, Australia and New Zealand are coming out of their lockdowns. They may potentially benefit from increased import demand from China.
What We Are Looking For
As usual, the official NBS Manufacturing PMI comes out first. And it could have the largest impact on the market.
Expectations are for it to fall a bit to 51 from 52 in the prior reading. There is an estimation that following the end of the lockdowns last month, there was a flurry of activity as manufacturers struggled to make up for lost time in meeting pending orders.
Projections are for NBS Non-manufacturing PMI to improve to 53.2 from 52.3 prior. Economists are banking on the rise in consumer demand to maintain its pace, despite some new social distancing restrictions being implemented.
Analysts aren’t expecting the Caixin survey to do so well. This is mostly because there is a higher preponderance of export companies measured. Projections indicate that Caixin manufacturing PMI will increase to just 50.3 compared to 50.1 prior.
While technically in expansion, it’s hardly a vote of confidence for the export sector.
The Market Reaction
With most of the world finally getting around to easing lockdown measures, the market has taken on a broader appetite for risk.
There is increasing confidence in a U-shaped recovery, at least among equities traders. Should we get some disappointing data out of China ahead of a major holiday, it might shake investor confidence and support safe-haven flows.
We shouldn’t forget that the PMI data comes out as most of the major Chinese firms are reporting what are expecting to be dismal first-quarter earnings.