More fiscal and monetary easing likely from PBoC in Q4

China's September official manufacturing PMI beat expectations, edging up to 49.8 from 49.7 in August. The key drivers of the rebound in the headline PMI were improvements in the production and new orders categories. 

"The employment conditions sub-index was flat at 47.9, its lowest level this year. The final reading of Caixin PMI was 47.2, down from 47.3 in August and a six-year low. The weak PMIs suggest the economy still needs to find its footing, and Q3 GDP growth (released on 19 October) is expected to be below 7.0% y/y", says Barclays. 

In view of sluggish domestic demand, China announced two policy measures this week to support consumption and the property market. First, the PBoC reduced the minimum downpayment for first-time home buyers to 25% from 30% in lower-tier cities. Second, the government cut the purchase tax for passenger cars with engines 1.6 liters or smaller to 5% from 10%. 

"More fiscal and monetary easing is still expected in Q4 to support growth, but the policies are not expected to change the economy's structural softening trend", added Barclays.