China’s PMI will improve market mood

China's official manufacturing PMI came in better than expected, at 49.8 in September, slightly higher than 49.7 in the prior month, and will help improve the market mood in the near term. The production index rose by 0.6pt to 52.3, and import index increased by 0.9pt to 48.1. 

New orders and export orders picked up by 0.5pt and 0.2pt respectively. Again, a widening divergence is seen between official and private Caixin PMI, suggesting that the small and medium-sized enterprises that is focused by Caixin PMI is still suffering from an economic slowdown. 

Indeed, commercial banks are still quite reluctant to provide credits to SMEs, but hoard large chunk of money into the corporate bonds issued by large names. As a result, the credit spread between government bonds and corporate bonds has narrowed to the lowest in six years. 

"To a large extent, this reflects a risk aversion sentiment, and suggests that the policy easing is not sufficient to offset the concerns over the economic slowdown", says Commerzbank.