China Caixin Manufacturing PMI Brings Market Relief

It was a busy Thursday morning on the Asian economic calendar. While economic indicators from Japan and Australia drew interest, the Caixin Manufacturing PMI numbers from China had more impact following disappointing NBS private sector PMI numbers on Wednesday.

The all-important Caixin Manufacturing PMI increased from 49.5 to 50.9 in May versus a forecasted 50.3.

According to the May survey,

• A pickup in production supported the upswing, with production rising at the most marked pace since June 2022.
• Significantly, new business growth accelerated at the second-fastest rate in over two years.
• Manufacturing firms reported improving demand conditions and the emergence of new customers.
• Despite the pickup in output, delivery times were shorter, with improving supply chains easing cost pressures.
• Average input costs fell for the second month, with a competitive market forcing firms to cut selling prices.
• However, business optimism waned, with optimism toward the 12-month outlook for production falling to a 7-month low.

While considering the manufacturing data from China, economic indicators from Japan and Australia were bullish.

Capital spending in Japan jumped by 11.0% in Q1 versus a forecasted 5.5% increase. In Q4, capital spending was up 7.7%. Private new capital expenditure in Australia also beat forecasts, rising by 2.4% in Q1 versus a forecasted 1.3% increase. In Q4, private new capital expenditure increased by 3.0%.

AUD/USD Reaction to the China Caixin Manufacturing PMI

Before the PMI, the AUD/USD rose to a pre-stat high of $0.65097 before falling to a low of $0.64844.

However, in response to the China PMI, the AUD/USD slipped to a post-stat low of $0.64861 before rising to a high of $0.65052.

This morning, the AUD/USD was down 0.06% to $0.64981.

Up Next

The US House of Representatives’ vote on the US debt ceiling deal needs consideration after a vote in favor of the debt ceiling deal.

Throughout the European session, manufacturing PMI numbers will also influence ahead of the US session.

Looking ahead to the US session, ADP nonfarm employment change, initial jobless claims, and the ISM Manufacturing PMI will move the dial. While investors are pricing in a more dovish Fed, solid labor market numbers could refuel bets on a 25-basis point June interest rate hike.

According to the CME FedWatch Tool, the chances of a 25-basis point interest rate hike tumbled from 66.6 to 26.4% on Wednesday as the markets responded to Fed chatter that favored a June pause.

However, FOMC members and US debt ceiling-related news will also need consideration.