China PMI Misses, Hot Weather Blamed

Heads up, China PMI just hit.

Here are the numbers:

  • CHINA JULY MANUFACTURING PMI AT 51.4; EST. 51.5

Manu

  • CHINA NON-MANUFACTURING PMI AT 54.5 FOR JULY

NonManu

So obviously that’s a slight miss, and apparently, the weather is the problem (China taking a page from the U.S. playbook). Here are the highlights from Zhao Qinghe, a senior statistician at National Bureau of Statistics:

  • Manufacturing activities slowed recently as affected by high temperature and flood in some regions
  • Imports, exports grew at a slower pace
  • Companies kept increasing procurement; have higher confidence in future development
  • Almost 40% companies said labor costs are rising; labor cost pressure large
  • Services sector generally stable
  • Construction sector is expected to keep relatively fast growth

The yuan is shrugging it off for the time being. USDCNH is sitting near 9-month highs…

YUan

… and the onshore yuan is on pace for a third monthly gain which would be the longest winning streak since 2014:

Yuan

Also on Monday, the PBoC just set the yuan fix at the strongest since October 14. Don’t forget, they’re implicitly managing two things at once: the bilateral rate and the basket. So when the dollar is in the dumps, they have to take that into account.

As a reminder, the stronger the Chinese economy, the more leeway Beijing has when it comes to reining in speculation and implementing the kind of tightening they desperately need to implement in order to get a handle on leverage. The rub, of course, is that tighter credit conditions constrain growth.

“Something has to give if they are curtailing credit,” Mizuho’s Vishnu Varathan, said earlier this month.

“The economy in the second half will likely slow down gradually,” Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong remarked, responding to today’s numbers. “With the deleveraging in process, we will see gradual lagged effects on the economy.”

In other words, the real pain may be pushed out a bit.

Developing…

 

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