The Chinese PMI manufacturing for April was broadly in line with expectations. The details point to some softening ahead, though, which is in line with other indicators
We show the details of the PMI releases from NBS and Caixin in the charts overleaf. The key takeaways are as follows.
- Headline PMI manufacturing was broadly flat in April, for both NBS and Caixin, and stayed at decent levels.
- New orders are moving lower, which, in combination with higher inventory indices, points to a slowdown ahead (see chart below).
- Export orders, in particular, are weakening, suggesting the export engine is losing some pace. This is in line with our export model showing rising headwind from a stronger CNY and weakening of the global business cycle (chart).
A decline in industrial profit growth also points to a softening of the Chinese business cycle (chart). We look for a further decline in PMI in coming quarters.
The recent slight easing of monetary policy by the People’s Bank of China may be a result of the rising signs of slower growth ahead, although another reason is to facilitate easier access to credit for small businesses despite the tightening measures against shadow banking and overall deleveraging.
The moderation of the Chinese business cycle is set to give less tailwind to emerging market assets and global metal prices. However, it provides support for both Chinese bonds and global bonds, through the disinflationary impact and contribution to a weaker global cycle.
