China Caixin Services PMI Slides to 53.9 Despite Improved Optimism

Highlights

• After disappointing manufacturing sector PMIs this week, the services sector was in the spotlight today.
• Weaker service sector PMIs would fuel recessionary fears as inflation and higher interest rates impact consumers.
• The Caixin Services PMI from China set the tone this morning.

It was a busy start to the day on the Asian economic calendar. Service PMI numbers for Japan and retail sales and manufacturing sector figures from Australia drew early interest.

However, the stats had a limited impact on market risk sentiment, with the Chinese economy in focus. This morning, the Caixin Services PMI sent more bleak economic signals at the end of the second quarter.

The Services PMI fell from 57.1 to 53.9 versus a forecasted fall to 56.2. As a result of the weaker Caixin Manufacturing PMI and Services PMI, the Chinese Composite PMI declined from 55.6 to 52.5.

According to the Caixin Services PMI Survey,

• Weaker-than-expected demand weighed on business activity in June.
• While total new business expanded, the expansion rate slowed to a six-month low.
• New export business expanded solidly but grew at the softest pace since January.
• Despite a weaker demand environment, firms became more optimistic for the first time in five months, citing improved economic conditions and new business as contributory factors.
• Improved sentiment supported labor market conditions, with the pace of hiring the most marked in three months.
• However, average input costs increased markedly due to staff costs and higher raw material prices.
• In contrast, prices charged increased modestly, with competition for new business capping price increases.

The weaker PMI followed the Caixin Manufacturing PMI, which raised the hope of more stimulus from Beijing.

AUD/USD Reaction to the China Caixin Services PMI

Ahead of the PMI numbers, the AUD/USD rose to a pre-stat high of $0.66985 before falling to a low of $0.66882.

However, in response to the Caixin Services PMI survey, AUD/USD fell from $0.66926 to a post-stat low of $0.66833.

This morning, the AUD/USD was down 0.10% to $0.66857.

Next Up

Following disappointing manufacturing PMI numbers from the euro area, services PMI numbers will be in focus today. We expect downward revisions to finalized numbers to weigh on riskier assets as the markets consider the risk of a Eurozone recession.

According to prelim numbers, the Eurozone Services PMI fell from 55.1 to 52.4 in June.

The US Session

It is a relatively quiet day ahead on the US economic calendar. US factory orders will move the dial following disappointing US ISM Manufacturing PMI numbers on Monday. Economists forecast factory orders to increase by 0.8% in May.

With the US markets reopening after the Fourth of July holiday, Fed chatter would also move the dial.

Away from the economic calendar, China-US tensions will also play a hand ahead of US Treasury Secretary Yellen’s visit to Beijing.