China: Hard data likely beat soft data in May – Standard Chartered

Analysts at Standard Chartered point out that China’s official manufacturing PMI fell further to 49.4 in May from 50.1 in April, returning to contractionary territory after a sharp rebound in March.

Key Quotes

“Production activity slowed due to the Labour Day holiday and weaker demand. The new orders sub-index fell below the 50 threshold after three months of expansion. The non-manufacturing PMI stayed flat at 54.3, supported by solid business activity of consumption-related industries. Construction PMI moderated, but the employment and expectation sub-indices picked up.”

“We expect industrial production (IP), fixed asset investment (FAI) and retail sales to have improved in May on favourable base effects and normalisation from the distortions caused by the value-added tax (VAT) cut in April and the holiday in early May. Exports and imports likely contracted, as indicated by sharply lower new export orders and import PMI readings.”

“FX reserves may have declined marginally, with negative FX valuation effects more than offsetting a positive asset price valuation effect. CPI inflation likely jumped due to surging food prices, while PPI inflation may have eased on falling oil product prices.”

“We expect M2 growth to have edged up in May as the People’s Bank of China (PBoC) net injected liquidity in the market and lowered the required reserve ratio (RRR) for small and medium-sized banks. Total social financing (TSF) growth may have remained flat while CNY loan growth slowed.”