China PMI weighs on Asian stocks

China’s factory growth has dipped to hit a six-month low, showing further signs of the economy stalling and sapping some investors’ confidence.

China shipping dock
Source: Bloomberg

According to HSBC/Markit flash manufacturing PMI numbers released this morning, November showed a print of 50.0. This was below the consensus forecast of 50.2 and the prior month’s reading of 50.4.

While overall new orders picked up slightly, new export orders had a rather notable slowdown.

Another dampener was from the factory output sub-index, which dipped to 49.5, the first contraction or reading under 50.0 for the first time in six months.

The disappointing PMI reading is the latest in a string of weak figures in recent weeks, strengthening the case for more stimulus measures to avoid a hard landing in the economy.

Earlier this week, China’s property sector showed a further weakness with prices of new homes dipping further in October. The reading showed a dip of 2.6%, which is double the drop in the prior month.

Heading into the release of the PMI numbers, Chinese stocks drifted lower. On the news, the China A50 retraced back up to offset the morning’s losses. This would suggest some short covering, but the subdued reaction indicates that investors are staying on the sidelines today.

There was a slight kneejerk reaction on the Australian dollar, which dipped as much as 0.35% to $0.8586 before retracing back to the $0.86 handle. There was also little immediate reaction from industrial metals such as copper.

With few local catalysts on the horizon, Chinese stocks are likely to take leads from overseas markets in the interim. This will put the focus on the manufacturing PMI numbers from the Eurozone and the US later in the day as well as US data on jobless claims.

The next potential lead from the Chinese macrodata is expected next Tuesday (10am SGT), when the Conference Board Leading Economic Index is released. The consensus forecast is for a slight uptick to 0.9% from the prior month’s 0.7%.

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