China PMIs Diverge as Services Expand and Tariffs Hit Manufacturing; AUD/USD Holds Gains

China PMIs Diverge – Services Expand, Factories Struggle Under US Tariffs

Will new trade terms revive China’s export sector? On Monday, June 30, key economic data from China indicated strengthening economic activity despite US tariffs.

China’s National Bureau of Statistics (NBS) Manufacturing PMI rose from 49.5 in May to 49.7 in June, remaining below the crucial 50 neutral level. Meanwhile, the NBS Non-Manufacturing PMI climbed from 50.3 to 50.5, signaling continued expansion across the services sector.

Notably, the manufacturing sector continued to contract, primarily due to the impact of US tariffs.

Manufacturing Sector Demand and Industry Trends

CN Wire revealed key trends in June’s PMI survey:

• Manufacturing production rose 0.3 percentage points (pps) to 51.0% as demand improved.
• The New Orders Index increased 0.4 pps to 50.2, crucially above the 50 neutral level.
• External demand contracted at a slower pace as the New Export Order Index advanced 0.8 pps to 48.3%.
• New export orders contracted for the 14th consecutive month, largely due to US tariffs.
• June’s data showed small businesses bearing the brunt of US tariffs. The Large Enterprise PMI rose 0.5 pps to 51.2%, with the Medium-Sized Enterprise PMI up 1.1 pps to 48.6%. However, small business activity lagged at 47.3%.

China’s Economic Outlook and a US-China Trade Deal

The June figures aligned with improving sentiment toward China’s economic outlook. Last week, Citi revised its 2025 growth forecast from 4.7% to 5%, mirroring Beijing’s growth target. Today’s data and Citi’s upgrade coincided with the US and China reaching a crucial agreements on trade.

US President Trump and Commerce Secretary Howard Lutnick reportedly stated the US and China signed a trade agreement on June 25. Following an initial lack of confirmation, news from Beijing suggested progress on a deal. China’s Ministry of Commerce reportedly stated:

“China will, in accordance with the law, approve export applications for controlled items that meet relevant requirements. The US side will accordingly lift a series of restrictive measures on China.”

Despite the agreements, key tariffs remain, suggesting the deal may only partially address trade barriers. US Treasury Secretary Scott Bessent poured cold water on hopes of an end to tariffs, reportedly stating:

“Now our tariffs are 30% on China, theirs are 10%. 20% Fentanyl tariffs on China remain in place.”

While June’s National Bureau of Statistics numbers drew interest, the Caixin PMI data typically has more impact on the markets. The Caixin PMIs will be out this week.

Key PMI Survey Differences

The NBS PMI primarily tracks large state-owned enterprises across China, while the Caixin PMI focuses on small- to mid-sized firms, particularly in coastal regions. As a result, the Caixin PMI often provides a more comprehensive picture of private-sector performance.

Several Key Events Could Dictate Market Sentiment:

It could be a crucial week for global markets. Traders should consider the following events and data for near-term AUD/USD and Hang Seng Index trends:

• China’s Economic Data Releases: The Caixin Manufacturing PMI (July 1) and Caixin Services PMI (July 3) will influence risk sentiment. Improving private sector activity and a US-China trade deal could fuel demand for risk assets and the Aussie dollar.
• Trade developments: Further details on the US-China trade deal will be crucial as Trump’s July 9 tariff deadline looms.

The AUD/USD and the Hang Seng Index reacted to the June PMI numbers, underscoring sensitivity to Chinese economic data.

The Hang Seng Index dropped from an opening high of 24,275 to a low of 24,173. At the time of writing, the Hang Seng Index was down 0.43% to 24,179.

Meanwhile, the AUD/USD dropped to a post-report low of $0.65365 before climbing to a high of $0.65414. At the time of writing, the AUD/USD was up 0.18% to $0.65409.

Discover strategies to navigate this week’s market trends here.