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China April PMIs : The Giant is Back to Growth?

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China April PMIs : The Giant is Back to Growth?
China has been reporting some pretty positive economic numbers lately, which has had an effect on quite a lot of assets around the globe. The surprise beat in GDP out of China followed by the surprise miss in US growth highlighted a shift in global economic dynamics. Indices trended sideways as corporate reports provided a mixed picture for the world’s largest economy.

Tomorrow’s data release will likely be pivotal for global risk appetite, particularly with regards to April PMIs. It will also likely be an important indicator for other tradeables, such as gold and crude. China is the world’s largest importer of fossil fuels, and there is expected to be a supply deficit this year. That could be exacerbated if China’s economy starts heating up again.

Gold and Beyond Commodities

China’s central bank is also the world’s largest buyer of gold, which has been off of recent all-time highs as the dollar has remained strong. But China’s strong economic position could mean more gold buying, and not just by the central bank as citizens look for another store of value after the debacle of the housing industry.

On the other hand, signs that China’s economy might be finally turning the corner could dampen expectations of more stimulus in the world’s largest importer. The crash in the Chinese stock market at the start of the year was understood to have been averted thanks to pressure from the government to support assets. So there is the chance of a counterintuitive response in the market, as better data could lead to a softening of expectations.

It’s Not Just China

As the world’s largest exporter, China April PMIs figures are also a bellwether for the major consumer economies in the world. In that respect, traders might be focusing on the difference between the official (NBS) and private (Caixin) measures. That could provide some clues as to how China’s potential revitalization could affect asset classes around the world.

The NBS survey tracks a smaller number of large, government-owned enterprises. These companies are shifting to be more domestically focused and are seen as receiving the lion’s share of government support. Caixin’s tracking of a larger number of smaller companies looks at a more agile economic section, but also one that is dominated by exporters. Therefore, an uptick in NBS which isn’t reflected in the Caixin measure might be an indicator that the Chinese domestic economy is improving thanks to stimulus. But the global economy isn’t following suit, which could mean the dollar could remain strong.

What to Look Out for

China’s official NBS Manufacturing PMI is seen staying in contraction but experiencing a slight reduction in April PMIs to 50.7 compared to 50.8 prior. We have to remember that last month was a surprise beat that brought the indicator back into expansion for the first time in months. So even a slight pullback could be understood as remaining positive.

The private Caixin Manufacturing PMI is forecast to behave in the same way, but stay even further in expansion at 51.0, down slightly from 51.1 prior. A move this small could ultimately be down to rounding. An unexpected beat, however, could send raw materials prices rising as the market becomes more comfortable with a narrative that China’s economy is on the rebound.

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