PBoC rate cut likely in Q4 15

China official manufacturing PMI remained flat at 49.8 in October, below expectation. On the breakdown, the pickup in new orders (to 50.3 from 50.2) was offset by the decline in production (to 52.2 from 52.3). Notably, employment conditions edged down to 47.8 from 47.9, staying at its lowest level in the last 12 months. 

Imports and input prices also declined to 47.5 and 44.4 in October respectively, reflecting weak domestic demand and weighing on producer prices. Decomposition of PMIs by firm size pointed to a mixed picture, with a small deterioration of manufacturing activities in large and small enterprises whiles some pickup in medium enterprises (Figure 3-5).

Overall, the flat PMI suggests the still-weak underlying growth momentum in Q4; therefore, more signs of near-term growth stabilization is expected, says Barclays. Latest data suggests that except from a robust service sector, most real activities point to sustained downside risks to growth. There has been some improvement in real estate investment since September with new floors started growing at 15.3% y/y, though the trend is yet to be confirmed. 

"Following the latest easing by the PBoC, one remaining 50bp RRR cut is expected in Q4 2015 due to surged capital outflows, and two more RRR cuts in H1 2016. Two more benchmark rate cut of 25bp each in H1 2016 is foreseen, given our forecast of continued economic headwinds with growth slowing to 6% in 2016", argues Barclays.