Ok, so last night we got the “official” Chinese PMI data and while the headline prints were nothing to write home about…
… the reflation bulls found something to love in the data as a construction sub-index accelerated, triggering a rather precipitous rally in iron ore, which jumped to a four-month high:
Fast forward to tonight and we just got the Caixin PMI which was a solid beat, printing at 51.1 versus estimates of 50.4.
That’s the best read since March and the second straight month of expansion. Output rose to 52.3 vs 50.6 in June – the highest since February. Here’s an excerpt from the press release:
Operating conditions faced by Chinese manufacturers improved at a slightly quicker pace in July. Companies indicated that both output and new orders rose at the fastest rates for five months, helped by a solid upturn in new export sales. At the same time, inflationary pressures ticked up, with both input prices and output charges rising at faster rates than in June. However, companies maintained a relatively cautious stance towards employment, with staff numbers falling again in July. This coincided with a subdued level of confidence towards the business outlook, with optimism towards the year ahead dipping to an 11-month low.
That’s good for a small move higher in the yuan, but really, it didn’t need another excuse to strengthen. July saw the third monthly gain for the onshore yuan – the longest winning streak since October 2014:
And the PBoC just set the fix at the strongest since October 11, on the back of further USD weakness.
PBOC Sets Yuan Fixing at Strongest Since Oct. 11, 2016
— Walter White (@heisenbergrpt) August 1, 2017
For context, here’s a look at the yuan with the late May/early June short squeeze highlighted so you can kind of get a feel for things:
Notably, this is giving the aussie a boost – and it was already moving…
.80 again for aussie
— Walter White (@heisenbergrpt) July 31, 2017
That is just about the last thing the RBA needed today, and this makes the upcoming decision all the more interesting…