Next week is quite busy on the economic calendar, and China will lead it off by announcing the latest PMI figures, a closely watched indicator for the economy. Then comes the lunar new year holiday, which leaves the Asian giant on holiday through the rest of the week (including the Fed rate decision). As a result, China-related moves in currencies could be concentrated around Monday.
Of course, the big thing on traders’ minds is how well the Chinese economy is doing, since that fuels commodity currencies and is an indicator of health for other major economies. The threat of tariffs on China from the new Trump administration, as well as certain tariffs from the EU and other trade barriers, are seen as growing headwinds for the world’s second-largest national economy. Meanwhile, the country has embarked on a massive quantitative easing program to shore up its domestic economy. Which side of that equation is winning might be deciphered from the upcoming PMI data.
The Importance of the Two Measures
Unlike most other economies, China has two measures for its Purchasing Managers Index (PMI). This time around, the first will be published on Monday, and the second won’t appear until Friday, giving an unusually large data gap. Many economists and analysts look at the difference between the two measures to get additional insight into the Chinese economy.
The official, National Bureau of Statistics (NBS) survey comes out first. This collects data from mostly large, state-owned enterprises. Typically, it is understood that these firms would be better connected with the government’s priorities, and could receive additional fiscal as well as regulatory support.
Important Indicators for Trade
The private measure is conducted by Caixin, and comes out usually a day or two later. This collects data from a wider range of smaller, often export-oriented businesses. These firms are seen as being more agile and responsive to global economic conditions.
As a result of these two different kinds of measures, both surveys tend to offer different results. The NBS is seen reflecting more of the domestic economy, while Caixin more of the export situation. With the government pushing domestic stimulus, traders will likely look at the difference between the measures to see how much of an impact the government measures are having. And how likely those measures will be stepped up if they aren’t delivering as expected. That could be an important indicator for things like the AUD, and commodities such as gold and crude.
What to Look Out For
Overnight, Chinese assets got a boost after President Trump said in a virtual presentation at the WEF’s conclave in Davos that he didn’t want to put tariffs on China. Not that he wouldn’t; as he also spent a part of the speech championing how well the tariffs worked during his first administration. However, markets cheered at the prospect that Trump might be less hawkish than thought, and there is room for avoiding tariffs.
China’s January NBS manufacturing PMI is expected to increase modestly into expansion at 50.3 from 50.1 prior. That will be released on Monday, with the private measure coming out on Friday. China’s January Caixin manufacturing PMI is expected to stay in expansion but remain unchanged at 50.5.
