China's Non-manufacturing PMI was supported by decent spending during the Golden Week holidays. The Manufacturing PMI grew steadily even though this was a short month. The main risks to this rosy picture are in chip shortages, high commodity prices, covid emerging in Guangdong (the factory province) and uncertainty around the direction of the yuan, as reported by ING.
Demand should continue to pick up but there are so many risks ahead
“China's Non-manufacturing PMI increased to 55.2 in May, from 54.9 in April. The Manufacturing PMI was fairly stable at 51.0 in May, from 51.1 in April and a decent result when taking into account the short month for factory work. Overall, new orders and new export orders fell, which likely reflects the impact of the holidays rather than anything more sinister. We believe that both sets of orders will pick up in June.”
“After the spending spree in May, we think that consumers will start saving for the long October holidays and their next spending spree. China has also seen emerging covid cases in Guangdong province, where most electronic factories are located. Together with semiconductor chip shortages and high commodity prices, there are challenges facing producers.”
“Exporters are now at a crossroads in deciding whether to cover their dollar receipts to take profits on their appreciated yuan revenues or to hold on for longer if the dollar is going to weaken further. But there are increasing warnings from the PBoC about yuan volatility that should not be ignored.”
“We expect that if the yuan continues to appreciate after recent rounds of talking down the appreciation by the PBoC, the PBoC may more forcefully manage the yuan's path. We have to remember that the yuan exchange rate mechanism is a managed-float mechanism. It is legitimate for the PBoC to choose to stabilise the exchange rate if it thinks this could reduce financial risks.”
“We keep our USD/CNY forecast at 6.30 by the end of 2021.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.