China - Mixed signals from November PMIs
In this China Macro update: Mixed signals from November manufacturing PMIs and cost price pressures ease on correction in energy prices.
China Macro: Mixed signals from November PMIs
China’s official manufacturing PMI published on 30 November came in stronger than expected at 50.1 (consensus: 49.7, October: 49.2), the first reading in expansion territorysince August. By contrast, Caixin’s manufacturing PMI for November published today was weaker than expected, falling back to 49.9 (consensus: 50.6, October: 50.6). Although the two headline PMIs for the manufacturing factor showed a different direction, a common factor was an improvement on the production side of the economy. The output sub index rose back to expansion territory in both surveys, but the most in the official survey that focuses more on large (state-owned) firms. This reflects the easing of energy policies following a power crunch, and a stepping up of infrastructure spending in line with our expectations. The key difference between both surveys related to the demand side: the new orders sub index improved a bit in the official survey, but fell by two points in Caixin’s survey (with a stronger focus on the private sector and SMEs).
Cost price pressures ease on correction energy prices
Another commonality in both manufacturing surveys is the sharp easing of cost push price pressures, driven by the recent correction in energy (and other commodity) prices. Meanwhile, the official services PMI came in stronger than expected, at 52.3 (consensus: 51.5, October: 52.4), with the composite PMI rising to a four-month high of 52.2 in November. Caixin will published its November services/ composite PMI coming Friday. All in all, the latest PMIs for China are in line with our view that quarterly growth will show a pick-up in Q4, following a very weak Q3 (+0.2% qoq). A further piecemeal easing of monetary and fiscal policy should also help to stabilise China’s growth. That said, ongoing drags from the real estate sector and from China’s zero-tolerance covid-19 strategy remain, with the emergence of the highly contagious Omicron variant posing additional downside risks.