China Manufacturing Weakens Further – Will Beijing Add Stimulus?

Just when everyone was about to ring the bell China manufacturing continues to show its true colors. For 13 months out the last 14 months 400 Chinese small to medium sized firms have been grappling with contraction in the manufacturing sector, this is according to the HSBC Flash Manufacturing PMI which came in at 47.8 and we also saw revisions down to last month’s prints from 49.5 to 49.3. It has not shown any sign yet of a recovery this result was the worst so far in the past 14 months. This is the longest losing streak in the series 8 year history.

Markets will be eagerly awaiting Chinese Manufacturing PMI which is scheduled to be released on September 1 this is a broader market survey that is just keeping its head in growth territory above 50.  Divergence of the two series looks to have maxed out and they have converged somewhat. This recent print on the HSBC series maybe a signal for the broader based survey to continue weakening as well.

china manufacturing

Keeping this in mind the market’s attention have turned to the likelihood that the Beijing and PBOC may need to do something more to stimulate its slowing economy. As the trade data and manufacturing data seem to be pointing towards the likelihood of continued slowdown in Chinese growth.  With Annual GDP Rate of 7.6% the economy has slow back very quickly to the new long term Growth target of Beijing which has been stated at 7.5%

 

The next piece of evidence  to consider is the Trade Balance which has been highlighting some the woes of China’s largest trading partners namely Europe and the US. Earlier this month China report a Trade Balance of $25.1b which missed markets expectations by $10bn.

Official interest rates in China sit at 6% which were cut back in early July that was the second time in the space of one month as Beijing scrambles to engineer a soft landing on China’s slowdown. But the question is- Is the global force too strong? There is every chance that the US will move on more QE which is pressuring the dollar, but add China into the discussion and you have a strong argument to suggest that risk assets can continue to rally as liquidity gets pumped into these markets again!