On Monday evening, April 30, the China Purchasing Managers Index (PMI) was released at 53.3, up from last month’s 53.1, and consistent with expectations for a 53.3 reading (Figure 1.1). This is the fifth consecutive month of improvement in the overall reading (Figure 1.2).
In the near term, I do not expect this report to have much impact on the capital markets. Internally, there is enough negative evidence to support the People’s Bank of China’s (PBOC) current easy monetary stance, as growth is not tracking as strong as in the previous three years. However, there is also enough positive evidence to dismiss the “hard landing” thesis.
Pulling back to 30,000 feet, I still expect continued easing from the PBOC and a second half acceleration in China’s growth to act as a tailwind for the capital markets. Investors should next focus on the China CPI reading to be released May 10 (Figure 1.3).
The PBOC has reduced the reserve ratio requirements twice in the past six months, however, there has been no further easing in the past two months. I expect another 50 basis points of easing will come in the latter part of the second quarter to defend against what historically have been weakening manufacturing months for May and June.
Within the China PMI report, I would highlight these mixed signals:
• Production Index rose to 54.9% from 53.8% in March
• New Orders fell to 51.2% from 52.0% in March
• Input Prices fell to 52.4% from 52.9% in March
• New Export Orders rose to 50.5% from 50.1% in March
• Imports fell to 49.1% from 49.4% in March
Figure 1.1 China PMI, December 2007 to Present
Figure 1.2 China PMI last seven months
April 53.3 Up Month-on-Month
March 53.1 Up Month-on-Month
February 51.0 Up Month-on-Month
January 50.5 Up Month-on-Month
December 50.3 Up Month-on-Month
Figure 1.3 China CPI, December 2007 to Present