Chinese PMI New Orders rose marginally in November. The headline PMI index rose too and will likely make headlines.

Be warned, however, there is clear (residual) seasonality in these data. A simple procedure to adjust for that suggests PMI new orders actually fell 0.6 points, a small moderation after its steady rise since the summer. See chart below.

That’s actually pretty much what we had expected: so there is not a big change in our global thermometer after the first of the big three PMI reports.

But here’s the interesting bit for us.

Our version of Chinese industrial production (a reworking of officially published data) has grown more than 2 per cent m/m each month for the past three months – the fastest growth since the immediate post-Lehman recovery.

That suggests pretty firmly that China’s post-stimulus slowdown is over and the economy is firmly back on a solid growth track, something which fits the observations of our commodity analysts during a recent field trip.

That post-stimulus cooling off was totally logical, but nonetheless it was a pretty big affair. To be absolutely precise, Chinese IP momentum peaked at a massive 41 per cent per annum in June 2009 as the equally massive stimulus program hit the system, and it subsequently slowed all the way to 10 per cent by June 2010.

Now we think the rebound from July this year has been a genuine one, but our momentum profile looks suspiciously “hot” relative to the new orders series.

So we had been looking for more trend-like growth over the next few months, even before the latest policy tightening measures.

Today’s (slight) drop in the adjusted PMI new orders series confirms that view.

And it leads to an interesting paradox: most likely our global IP momentum pickup will happen despite a (technical) slowdown in Chinese production momentum in Q1.

Less steamy growth ahead might come as a relief to those concerned with future tightening, but we’d also point out that the prices paid component of the PMI rose sharply again.

So we don’t think the worry about inflation and inflation expectations post QE2 will go away any time soon.

Nor do we think that Chinese tightening will become fundamentally hostile to growth per se, just used to try and lean against above-trend growth.

One good way to think about this is via a chart which the PBOC publishes on its Chinese website (but not as far as we know in English). It shows an industrial “output gap” measure against non-food inflation.

We have reverse engineered it – see below:

The chart tells a pretty clear story: the recent growth spurt has brought the output gap slightly into positive territory, while non-food inflation is proving sticky at around 2 per cent and may be shaping higher.

That’s not quite what the inflation doctor ordered, so it makes sense to expect monetary policy to target trend, or even marginally below trend, growth in industrial output.

Which is what we have in our current forecast …

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Jonathan Wilmot, chief global strategist at Credit Suisse Investment Bank and team are blogging at FT Alphaville for the day.

Please read this Credit Suisse small print.

This entry was posted by Guest writer on Wednesday, December 1st, 2010 at 1:36 and is filed under Capital markets, People. Tagged with china, credit suisse, Jonathan wilmot, PMIs. Edit this entry.