China Caixin Services PMI Highlights a Marked Pickup in Sector Activity

Highlights

• The China Caixin Services PMI rose from 51.5 to 52.9 in December.
• Domestic and overseas demand increased, reflecting an improving macroeconomic environment.
• Next up, US labor market numbers.

China Service Sector Activity Accelerated in December

On Thursday, the China Caixin Services PMI drew investor interest. Concerns about the Chinese economy resurfaced in the New Year, with the NBS private sector PMIs setting the tone.

However, the Caixin Services PMI increased from 51.5 to 52.9 in December. Economists forecast an increase to 51.6.

According to the Services PMI Survey,

• Service sector activity expanded at the fastest pace for five months.
• Service sector companies reported improved market conditions, driving new business, and a pickup in service sector activity.
• Overseas demand for Chinese services increased at the most marked pace since June.
• Increasing demand allowed firms to increase staffing levels, the first increase in staffing levels for three months.
• Input costs increased at a faster pace while selling prices rose at a softer rate.
• Competition to attract new business affected selling price trends.
• Firms were upbeat about the 12-month outlook. Firms expect output to increase during 2024. Nonetheless, positive sentiment remained below the long-run average.

The pickup in service sector activity reflected the positive effects of Beijing’s stimulus on the economy. Significantly, the more influential Caixin survey-based report painted a rosier picture than the NBS survey-based report. The NBS Non-Manufacturing PMI increased from 50.2 to 50.4.

In December, the Caixin Manufacturing PMI also increased, albeit modestly, from 50.7 to 50.8.

AUD/USD Reaction to the China Caixin Services PMI

Before the China Caixin Services PMI, the AUD/USD fell to a low of $0.67219 before rising to a high of $0.67359.

However, in response to the December numbers, the Aussie dollar rallied from $0.67246 to $0.67337.

At the time of writing, the Aussie dollar was down 0.01% to $0.67302.

Up Next

On Thursday, US labor market economic indicators warrant investor attention. ADP employment change and initial jobless claims will garner investor interest. Tight labor market conditions could further reduce the bets on a Q1 Fed rate cut.

However, US service sector PMI numbers will also influence the Fed interest rate trajectory.

After the hawkish FOMC Meeting Minutes, investors could show increased sensitivity to the US stats.