Because the data came out on a Saturday, Monday’s Asian session is the first chance for markets to price the miss. Softer Chinese factory demand is usually a headwind for industrial metals such as copper and iron ore, and for China-sensitive currencies including the yuan and the Australian dollar. Chinese equities may be partly cushioned by expectations of more policy support. For oil, a weaker demand signal from a key crude buyer would normally weigh on prices, but for now it is likely to be overshadowed by supply risk in the Strait of Hormuz. Price sub-indices that are easing but still elevated also weaken the case for reading the release as disinflationary.
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Earlier
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China’s brief return to factory growth lasted a month, with October’s PMIs slipping below 50 across the board and putting Beijing’s stimulus intentions back in the spotlight.
Summary:
- China’s official manufacturing PMI fell to 49.3 in October from 50.1, below the 49.9 median forecast and back under the 50 line separating expansion from contraction
- Production fell to 49.8, new orders to 49.4 and new export orders to 48.7; large firms held at 50.2, while medium and small firms came in at 48.4 and 47.5
- The non-manufacturing PMI dropped to 49.7 from 50.2, and the composite output index fell to 49.7 from 50.7, with finance the only major service category in decline
- The NBS cited seasonal factors, including a pullback in export orders after September’s surge, softer post-holiday consumer demand and demand pulled forward before National Day
- Input prices eased to 56.8 and output prices to 51.7, both still above year-earlier levels
- Beijing is targeting 4.5% to 5% growth this year and has signalled it is ready to add stimulus if conditions worsen
China’s manufacturing sector slipped back into contraction in October. The official purchasing managers’ index fell to 49.3 from 50.1 in September, according to data released on Saturday by the National Bureau of Statistics and the China Federation of Logistics and Purchasing. The reading fell short of the 49.9 median forecast in a Bloomberg survey of economists and dropped below the 50 threshold that separates expansion from contraction, reversing September’s return to growth.
The weakness on the factory side was broad. The production sub-index fell 1.9 points to 49.8 and new orders fell 1.1 points to 49.4, while new export orders dropped to 48.7, leaving all three below 50 in the same month. Large manufacturers stayed just in expansion at 50.2, but medium and small firms recorded 48.4 and 47.5 respectively. High-technology and equipment manufacturing bucked the trend, with readings of 51.3 and 50.6.
Activity outside manufacturing also softened. The non-manufacturing PMI, which covers services and construction, fell to 49.7 from 50.2, and the composite output index dropped a full point to 49.7. The NBS said finance was the only major service category to record a decline in business activity, and that its drop was relatively sharp. Water transport, postal services, and internet and software services all held above 55. Construction activity was also weak.
Huo Lihui, chief statistician at the NBS service industry survey centre, attributed the factory slowdown mainly to seasonal factors. These included a pullback in overseas orders after a surge the previous month, softer consumer demand after the holiday period and a seasonal slowdown in basic raw materials. The bureau also pointed to demand pulled forward ahead of the early October National Day holiday and to uncertainty in the international environment.
Price pressures eased but remained elevated. The raw material purchase price sub-index fell 4 points to 56.8 and the output price gauge fell 2.3 points to 51.7. Both remained above their levels a year earlier, a sign that industrial prices are still relatively firm.
The data suggest the economy lost momentum at the start of the fourth quarter after a modest recovery in the third, as Beijing works to keep annual growth within its 4.5% to 5% target. Policymakers have signalled they are prepared to add stimulus if conditions deteriorate, and October’s figures are likely to sharpen market focus on whether further support arrives before year-end.
This article was written by Eamonn Sheridan at investinglive.com.