China’s June PMI surprises on upside, but leading indicators point to weaker cycle in H2

China’s leading indicators have pointed to a peak in the cycle since the start of 2017. The country’s June PMI data indicates towards a less downside risks, as it showed a small rise. China’s Caixin/Markit manufacturing PMI surprised positively as it rose from May’s print of 49.6 to 50.4 in June. Consensus expectations were for the PMI figure to stay below the 50 level. The June PMI data underpins the view that China’s growth has continued to be strong at the end of the second quarter. However, the Chinese economy is expected to gradually slowdown in the quarters ahead.

The most preferred leading indicators show a weaker cycle in the second half of this year, noted Danske Bank in a research report.

Housing is one of the most vital drivers of the Chinese cycle. It decelerated further in May. It is expected to slow down even more, and along with weaker infrastructure, it is expected to driver the Chinese activity slower in the second half of this year and early 2018, stated Danske Bank.

Meanwhile, the PMI exports for June rose and still at strong levels. With growth likely to remain strong in the euro area and the U.S., China’s exports are likely to expand at a decent rate. Given that the industrial cycle is turning lower, China is shifting from a reflationary force in 2016 to a deflationary force in 2017, as seen by downward pressure on commodity prices, added Danske Bank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 23.3107, while the FxWirePro's Hourly Strength Index of Chinese yuan was neutral at -21.7834. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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