Markets will keenly watch the different versions of purchasing managers index out of China over the weekend and early next week. The data will likely be pivotal for several commodity currencies, though could have an effect farther afield given the trade war. This week, US Treasury Secretary Scott Bessent acknowledged that trade talks with China had mostly stalled. The question is what does that mean for the global economy.
The Chinese government has been pouring substantial amounts of stimulus into the economy to refocus it away from trade. This has led many economists to believe the Asian giant could avoid some of the worst effects of the trade war. However, last month’s unexpectedly dour PMIs dented that perception. This was followed by announcements of further support for the economy. As a result, a poor performance in the upcoming data could get some traders optimistic for additional government support that could be viewed as positive for the markets.
Australia, But Canada, Too
The country that is seen as being the most affected from the industrial conditions in China is Australia. Its imports of raw materials keep a constant demand to buy Aussie dollars. With the Chinese economy remaining largely resilient, the AUDUSD has managed to trend relatively flat over the last few weeks, despite the RBA turning move dovish.
Another dovish central bank is the BOC, with considerable doubts about whether it will hold rates steady at the next meeting. After the US slapped tariffs on Canadian oil, the country has made efforts to export more to China. As the largest importer of crude, demand from China is seen having an important impact on Canada’s main export – and therefore, the valuation of the dollar.
What to Look Out For
Traders will also be interested in comparing the difference in measure from the official (National Bureau of Statistics – NBS) and private Caixin measure. The former tracks mainly large, government-owned, and more domestically-focused companies. Caixin, on the other hand, includes a wider range of smaller, export-oriented companies. These are seen as being both more affected by the trade war, but also more agile in overcoming the obstacles.
Context is also important, after the April measure came in below expectations. That was the first month affected by the trade tariffs. Analysts had apparently been overestimating Chinese companies’ resilience to the trade war. That could happen again, with a worse than expected result likely weighing on commodity currencies and gold.
What Is Expected
The official NBS figures come out over the weekend, with Manufacturing PMI expected to improve slightly to 49.5 from 49.0 prior. But, that would still be below the 50 level that separates expansion from contraction. The Non-Manufacturing PMI is expected to advance slightly into expansion to 50.6 from 50.4 prior.
The private Caixin Manufacturing PMI reading is on Tuesday, and is expected to show a drop to 49.5 from 50.4 prior, a return back to contraction. The services measure, coming out two days later, is expected to also decline but stay in expansion at 50.4, compared to 50.7 prior.