China Caixin Manufacturing PMI Signals Expansion on Domestic Demand

Highlights

• The Chinese manufacturing sector returned to expansion in November.
• Overseas orders continued to fall while Beijing stimulus measures supported domestic demand.
• Later today, Fed Chair Jerome Powell will also influence market risk sentiment.

China Manufacturing Sector Crawls into December

On Friday, the Chinese economy was in the spotlight again. After disappointing NBS private sector PMIs, the all-important Caixin Manufacturing PMI drew investor interest.

In November, the Caixin Manufacturing PMI increased from 49.5 to a three-month high of 50.7. Economists forecast a rise to 49.8.

According to the November survey,

• New orders increased at the most marked pace since June. Manufacturers attributed the increase to firmer market conditions.
• However, new overseas orders declined, highlighting the weak global demand environment.
• Purchasing activity expanded in November, while the rate of decrease in purchase stocks was less pronounced.
• Supply chain conditions improved for a second consecutive month.
• The uptick in demand eased the pace of job shedding to the slowest in the three-month cycle of staff cuts.
• Average input costs increased modestly, while factory gate prices were flat compared to October.
• Manufacturer optimism rose to the highest level since July in hopes of an uptrend in demand.

Key Takeaways from the Survey

A pickup in domestic new orders suggests Beijing stimulus measures are providing modest support. The markets may expect a more substantial stimulus drive to bolster the economy amid a weak global macroeconomic backdrop.

Despite the increase in domestic new orders, the sector remains exposed to the risk of another contraction. A more significant decline in overseas demand could have a more pronounced impact on sector activity. Overseas demand needs to materialize to deliver a more marked pickup in sector activity.

The Aussie Dollar Reaction to the Caixin Manufacturing PMI Survey

Before the PMI release, the AUD/USD fell to a low of $0.66016 before rising to a high of $0.66245.

However, in response to the PMI survey, the AUD/USD rose from an opening price of $0.66235 to a high of $0.66278.

The better-than-expected report suggests a pickup in demand from China. China accounts for one-third of Australian exports. With an Australian trade-to-GDP ratio above 50%, increased demand from China would be a boon for the Australian economy and the Aussie dollar.

This morning, the AUD/USD was up 0.35% to $0.66273.

Next Up

Manufacturing PMI numbers from the euro area and the US will be in focus throughout the day.

However, central bank speeches will likely draw more investor interest. ECB President Lagarde will speak before Fed Chair Powell takes the stage. Fed Chair Powell delivers speeches infrequently and could have more sway on the global financial markets. Support for an H1 2024 Fed rate cut could sink the US dollar.