China’s Manufacturing PMI the Weakest Since 2016

China’s manufacturing PMI contracted for the first time since 2016. The effects offset by positive updates on trade talks.
Bob Mason
China and US

Earlier in the Day:

Economic data scheduled for release this morning was limited to November private sector credit figures out of Australia and December private sector PMI numbers out of China.

With the year coming to an end, a number of key markets are closed through today, including Japan, Italy and Germany, with the remainder on a shortened session to pin back volumes through the day ahead of tomorrow’s market close.

For the Aussie Dollar, private sector credit rose by 0.3% month-on-month, in November, which was in line with forecasts, whilst easing from a 0.4% rise in October, according to figures released by the RBA.

  • Personal credit continued to drag in the month, falling by 0.3% following October’s 0.3% decline.
  • Housing credit and business credit saw the same pace of growth, rising by 0.3% and by 0.5% respectively.

The Aussie Dollar moved from $0.74096 to $0.70525 upon release of the data, which preceded the PMI numbers out of China.

Out of China, it was a mixed bag, with the manufacturing PMI falling from 50.0 to 49.4 in December, reflecting a contraction in the sector after stagnating in November. Service sector activity picked up however, with the PMI rising from 53.4 to 53.8, coming in ahead of a forecasted 53.2.

  • Large companies and state owned enterprises (SOEs) within the manufacturing sector contracted for the first time since 2016 and was the weakest since February 2016.
  • New export orders contracted for a 7th consecutive month.
  • Support came from the non-manufacturing sector numbers, with the Chinese government having been looking to rebalance the economy skewed in favour of non-manufacturing.

The Aussie Dollar moved from $0.70536 to $0.70464 upon release of the figures, before rising to $0.7059 at the time of writing, up 0.17% for the session, supported by positive updates over initial talks between Trump and Chinese Premier Xi.

Elsewhere, the Japanese Yen stood at ¥110.45 against the U.S Dollar, down 0.16% for the morning. For the Kiwi Dollar, things were less rosy, down 0.01% to $0.6717.

In the equity markets, positive updates from Trump on trade talks provided support to the Hang Seng, which was up 1.18% at the time of writing, while the ASX200 gave up gains from earlier in the session, down 0.06%, with the reversal coming in spite of bounce in the U.S futures market, the Dow Mini up by 146 points.

The Day Ahead:

For the EUR, there are no material stats scheduled for release through the day, with the EUR finding little support following the Italian coalition government’s expected wrapping up of the 2019 budget in line with EU requirements.

Market sentiment towards next week’s trade talks between the U.S and China and sentiment towards the global economic outlook will also provide direction, this morning’s manufacturing PMI number out of China to influence.

At the time of writing, the EUR down 0.08% to $1.1435.

For the Pound, there are no material stats scheduled for release, leaving the Pound in the hands of Brexit chatter through the week.

With the delayed parliamentary vote scheduled for 14th January, Theresa May has very little time to garner the necessary support and to rally the Tory troops, a week of debates scheduled to start next Monday ahead of the following week’s vote.

At the time of writing, the Pound was down 0.09% to $1.2687, with direction through the day hinged on Brexit chatter, which should be on the lighter side through the day, jitters ahead of the parliamentary debates likely to begin creeping in.

Across the Pond, with no economic data scheduled for release, the Dollar will be in the hands of market risk appetite ahead of tomorrow’s holidays, with trade war chatter and the extended government shutdown to dictate direction through the day. Look out for another major equity market move that will also impact Treasury yields and the Dollar.

At the time of writing, the Dollar Spot Index was up 0.04% to 96.44, with chatter from Capitol Hill to provide direction through the day.

For the Loonie, a lack of economic data until the end of the week leaves the Loonie in the hands of crude oil prices and sentiment towards the global economic outlook, this morning’s private sector PMI numbers out of China will have been overshadowed by positive updates from the U.S President on initial talks with Chinese Premier Xi.

The Loonie was up 0.11% to C$1.3623 against the U.S Dollar at the time of writing.

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