China’s official PMIs went to 50.5 for January, but European markets were not that impressed.
The HSBC/Markit Economics PMIs, meanwhile, were an uninspiring 48.8, compared to 48.7 in December.
Societe Generale’s Wei Yao says that, on breakdown, the official PMIs doesn’t look so hot either. Most of the growth coming from production, while the closely-watched export orders were poor:
New export orders declined by more than 1ppt to 46.9, reflecting both weak demand and the impact of the festival break. The import sub-index dropped even further, from 49.1 to 46.9, and there was very little seasonality in this series. Together with a depressed level of backlog orders, at only 43.2, the boost in total orders looks temporary, and suggests that manufacturers are not very optimistic about the near-term outlook. Given today’s report, we think year on year export and import growth will prove to be barely positive in January. These figures are due on 10 February.
Wei says this is consistent with SocGen’s view that this will be a shallower, but longer, downturn than that of Q4 2008 – Q1 2009.
Which tallies with Also Sprach Analyst’s view too:
While the readings for most China’s macro data in the beginning two months are somewhat distorted due to the Chinese New Year, it is still worth pointing out that the current January PMI appears to be the weakest among all Januarys on record except for the year 2009, when the financial crisis hit.
Wei also has a good diagram of the relationship between the two different surveys (right) and the components of the official survey (left):
Wei says the combination of the poor figures and Chinese New Year means that the next much-anticipated cut to the Chinese banks’ required reserve ratio (RRR) probably won’t happen until March.
Even when that RRR cut does come, it may not be much of a panacea. Last month we looked at the connection between the RRR and accumulated foreign capital. FT’s BeyondBrics now has some CLSA research explaining in even more detail why an RRR cut isn’t really “loosening” at all. In short, levels of outstanding loans do not correlate to changes in the RRR — which, CLSA says, is because credit availability is determined by the Communist Party.
Related links:
The PBoC’s unofficial rate policy – FT Alphaville
The Chinese funding risk is everywhere - FT Alphaville
The PBoC and that RRR decision – FT Alphaville