China: Worsening sentiment in the manufacturing sector – Standard Chartered

Analysts at Standard Chartered note that China’s official manufacturing PMI registered the lowest reading since July 2016 in November, staying on the dividing line between expansion and contraction.

Key Quotes

“Demand softened on a broad base, and the new orders sub-index fell for the fourth straight month to 50.4. The new export orders PMI stayed in contractionary territory, but improved slightly by 0.1ppt. Production activity moderated, partly due to production restrictions to tackle air pollution. The non-manufacturing PMI fell to 53.4 in November, the lowest reading since August 2017, largely dragged down by weaker construction activity. The survey results suggest a continued slowdown.”

“We expect trade performance to have moderated, while still supported by base effects, front-loading activity, and supportive measures. FX reserves likely declined further, but at a slower pace than the past two months.”

“CPI and PPI inflation may have eased in November. We think real activity saw mixed performance, with retail sales and fixed asset investment (FAI) growth edging up but industrial production (IP) slowing down.”

“Credit growth may have eased further in November. CNY loan growth likely remained stable, while off-balance-sheet lending continued to shrink. Support from local government special bond issuance was likely minimal, with 98% quota used as of end-October. We expect M2 growth to have remained low at 8.0% y/y in November, as the central bank has not conducted reverse repo operations since 26 October.”