Caixin China Manufacturing PMI 50.7 beats expectations 49.6 and prior 49.4

The Caixin China Manufacturing PMI has been released as follows:

Caixin China Manufacturing PMI

• Caixin China Manufacturing PMI 50.7 beats expectations 49.6 and prior 49.4.

This data follows China's manufacturing Purchasing Managers Index (PMI) which stayed above 50 in May, a bullish input for AUD. However, China's May factory activity demand remains weak.

Reuters reported that China's factory activity unexpectedly returned to growth in May "as strict measures to contain the coronavirus outbreak were eased, but the improvement was marginal as export orders continued to shrink, a private business survey showed on Monday."

Though modest, May's reading was the highest since January, driven by a sharp increase in output as companies got back to work and cleared outstanding orders. Supply chains also steadied after massive disruptions early in the year.

But demand remained subdued. With many of China's trading partners deep in lockdowns of their own, new export orders remained firmly in contractionary territory, although the drop was not as sharp as in April. Consumers have also remained cautious amid job losses and fears or a fresh wave of infections.

Although much of China's economy has reopened and the outbreak appears to have been contained, many manufacturers are struggling with reduced or cancelled overseas orders as global demand falters.

Factories also continued to cut payrolls, but the pace of job shedding eased. Avoiding mass unemployment is a top government priority, with a target to create over 9 million urban jobs this year.

"Sluggish exports remained a big drag on demand as the virus continued spreading overseas," said Wang Zhe, senior economist at Caixin Insight Group.

"Stabilizing the job market is a top priority on policymakers' agenda this year, as shown in last month's government work report. Boosting employment is not an easy task, as the employment subindex in the Caixin manufacturing PMI survey has remained in contractionary territory for five months in a row," Wang said

Market implications

Growth has returned to the manufacturing sector, but new export orders and imports are still in contraction. Overseas demand in a post-COVI-19 world will be low for the forcible future so a recovery in manufacturing and employment in some sectors will remain challenging.

Overall, trade wars are back on the agenda which is not going to be helpful for risk sentiment going forward. In such an environment, the yuan and Aussie can expected to struggle. 

• Chart of the Day: AUD/USD is at make-or-break resistance, 0.6400 or 0.6820

Description of the Caixin China Manufacturing PMI

The Caixin China Manufacturing PMI™, released by Markit Economics, is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private manufacturing sector companies.