Chinese manufacturing PMI index rises marginally in August

China’s manufacturing PMI rose surprisingly in August. It disguises different underlying trends in production and new orders. Manufacturing PMI index rose marginally to 51.3 in August from July’s 51.2. The production sub-index rose from 53 in July to 53.3, being the key factor which drove the headline PMI higher, according to an ANZ research report. Nevertheless, new orders and new export orders eased to 52.2 and 49.4, respectively. The different trends in production and new orders imply that business sectors are still facing uncertainties down the road, particularly from the external environment.

On a positive note, both input and output prices rose on a year-on-year basis, which might lend support to PPI inflation, if they persist. In the manufacturing sector, input and output price indices rose to 58.7 and 54.3, respectively after declining for many months. Although the U.S. trade tariffs and CNY depreciation in the month might have added to import inflation, China’s latest policy adjustment, which aims to stimulate investment, might also bode well for domestic commodity prices, stated ANZ. This might indicate strong PPI inflation prints for the rest of the year, and therefore a stabilization in economic momentum in the fourth quarter.

China’s recent domestic policy adjustments appear to have some positive impacts while external uncertainties linger. The latest policy adjustment, in particular the shift towards a proactive fiscal policy in late July, appears to have lifted local sentiment.

The expectation indices for the manufacturing and non-manufacturing sectors rose in August after declining in the past two to three months. The PMIs of medium and small-sized enterprises also rose to 50.4 and 50 in August, respectively. The State Council, on 30 August, announced further tax cut for agricultural and SME-related lending, and tax breaks for foreign investment in China’s bond market.

“We expect such measures to help stabilise domestic sentiment going into Q4. The biggest uncertainty still lies with the China-US trade spat, a further escalation of which may trigger more domestic-focussed policy adjustments from Chinese policymakers”, added ANZ.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at -63.3699, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 38.0754. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex