China Caixin Manufacturing PMI Drops Below 50 on Weak Overseas Demand

Highlights

• The Caixin Manufacturing PMI fell from 50.6 to 49.5 in October.
• Weak overseas demand dragged on productivity, pulling the sector into contraction.
• Next up, US labor market numbers and the heavily-anticipated Fed interest rate decision and press conference.

China Caixin Manufacturing PMI Drops Below 50

On Wednesday, the China Caixin Manufacturing PMI was in focus after weaker NBS PMI numbers on Tuesday. The Caixin Manufacturing PMI unexpectedly fell from 50.6 to 49.5 in October. Economists forecast an increase to 50.8.

According to the October Survey,

• Production fell for the first time in three months, weighing on the headline PMI.
• New orders increased for the third consecutive month, albeit marginally.
• Firms attributed a weak macroeconomic environment and high prices to lackluster demand.
• New export orders fell for the fourth consecutive month.
• The Weak demand environment and a pullback in production impacted purchasing activity, which declined for the first time since July.
• Manufacturers cut staffing levels for the second successive month. The rate of job cutting was the most marked since May. Firms cited weak demand and cost-cutting efforts for staff layoffs.
• Input prices increased at the most marked pace since January, leading to higher factory gate prices.
• Business confidence waned in October, with the outlook for the next 12 months hitting the lowest level since September 2022.

The latest manufacturing PMI figures will raise concerns over the external forces on the Chinese economy and the effectiveness of recent stimulus measures.

On Tuesday, the NBS Manufacturing PMI fell from 50.2 to 49.5, painting a similar picture of the Chinese manufacturing sector.

The AUD/USD Reaction to the China Caixin Manufacturing PMI

Ahead of the PMI release, the AUD/USD reached $0.63436 before dropping to $0.63234.

However, in response to the PMI numbers, the Aussie dollar tumbled from 0.63343 to a low of $0.63182.

This morning, the Aussie dollar was down 0.22% to $0.63230.

Next Up

Later in the Wednesday session, ADP nonfarm and JOLTs Job Openings will garner investor attention. Tighter labor market conditions would fuel bets on a more hawkish Fed rate path. Economists expect the ADP to report a 150k increase in employment in October. However, economists expect JOLTs Job Openings to decrease from 9.61 million to 9.25 million in September.

While the numbers will draw interest, the Fed interest rate decision and press conference will be the main event. Economists expect the Fed to leave interest rates unchanged at 5.50%. Barring a surprise Fed rate hike, the focus will be on the Fed press conference. A hawkish Fed Chair Powell and rising bets on a December Fed rate hike would impact market risk sentiment.