China’s manufacturing PMIs surprises
Ahead of China’s week-long holiday, September’s manufacturing PMIs had surprised on the upside, though with the on-going worries over US-China trade, a risk-off sentiment sustains.
Manufacturing sector seen stabilizing
Kicking start a data-centric week, we have seen China’s official manufacturing PMI out of the National Bureau of Statistics (NBS) suggesting an improvement to 49.8 against the market’s consensus of an unchanged 49.5 from August. This nevertheless marks the fifth consecutive month seeing the sector in contraction territory while the non-manufacturing PMI slipped slightly to 53.7, down from 53.8.
What was instead more surprising had been China’s Caixin manufacturing PMI reading coming in at the highest since February 2018 at 51.4. The market had pencilled in a decline to 50.2 from 50.4 in August. New orders and output had notably improved to reflect further signs of stabilization despite fresh tariffs from this private gauge.
To some extent, this further backs the People’s Bank of China’s (PBoC) stance of being in ‘no rush’ to add stimulus to cope with the downward pressure upon the economy. Furthermore, as suspected, the policymakers’ intent to wait and see the impact from the earlier series of policy support for the economy including the likes of tax cuts and special local government bonds to finance infrastructure projects appear to be bearing fruit with this leading indicator reflection.
Trade woes overshadow for Asia markets
The above said, the start of the fresh trading week continues to reflect the focus on US-China trade tensions which remains a key driver for Asia markets. Prior to China’s 70th National Anniversary, the White House’s latest consideration of limiting investments in China continues to highlight the woes between the two sides. Although clarification did come through and the market is unlikely to rush to price in the worst-case scenario, it remains a dent for sentiment which could continue hailing cautiousness within the market ahead of the trade talks in October.
Against such a backdrop, look to a risk-off tone to continue being the case for Asia markets going into the fresh week, keeping that bias for USD/Asian upsides and likewise with Asia markets.
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