China NBS Manufacturing PMI Signals Continued Contraction

Highlights

• China NBS private sector PMI numbers set the tone this morning.
• The mood was bearish, with China’s manufacturing sector continuing to contract in June.
• However, the US Core PCE Price Index and personal spending numbers will be the key drivers.

It was a busier start to the day on the Asian economic calendar. Tokyo inflation numbers and industrial production figures for Japan drew interest early in the session.

However, private sector PMI numbers had greater significance, with the markets fretting over the Chinese economy. While the NBS survey-based numbers tend to have less impact than the Caixin survey-based PMIs, today’s stats influenced market risk sentiment.

The PBoC delivered policy support in recent weeks to reboot the Chinese economy. Today’s stats could reignite bets of a Beijing stimulus package.

In June, the China NBS Manufacturing PMI increased from 48.8 to 49.0, while the Non-Manufacturing PMI fell from 54.5 to 53.2. Economists forecast the manufacturing PMI to rise from 48.8 to 49.0 and the services PMI to fall from 54.5 to 53.7.

The latest Manufacturing PMI allayed the immediate fear of a deeper contraction ahead of the all-important Caixin Manufacturing PMI.

Other stats include private sector credit numbers from Australia. However, the numbers played second fiddle to the China PMIs. Australian private sector credit increased by 0.4% in May versus 0.6% in April. Economists forecast a 0.4% rise.

AUD/USD Reaction to China NBS Manufacturing PMI

Ahead of the NBS private sector PMIs, the AUD/USD rose to a pre-stat high of $0.66213 before falling to a low of $0.66032.

However, in response to the China PMIs, the AUD/USD rose to a post-stat high of $0.66166 before falling to a low of $0.66054.

This morning, the AUD/USD was down 0.13% to $0.66075.

Up Next

Looking at the US session, it is a big day for the global financial markets. The US Core PCE Price Index and personal spending will likely decide the outcome of the FOMC meeting in July and influence sentiment toward the September interest rate decision.

US economic indicators from Thursday had a hawkish on Fed bets despite the influence of today’s stats.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 89.3% versus 81.8% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 26.8%, up from 16.4% on Wednesday.