Today’s flash PMI in China for August was much better than expected. The slow recovery in the China economy it points to is corroborated by the lift in associated commodity prices, and to a slightly lesser extent H-Shares. AUD, however, remains mired near its recent lows, looking increasingly out of line with other China plays. A correction higher though will likely require a lessening in the downward pressure being place on dollar-bloc FX by the renewed rise in UST yields
China Flash PMI much better than expected, but corroborated by commodities
The Flash reading of the HSBC PMI for August was much better than expected at 50.1, up from a final reading of 47.7 in July and a consensus expectation of just 48.2 (indeed the reading was above the entire range of expectations among the 16 analysts polled by Bloomberg of 47.5-49.2). This can be seen as evidence that the steps being taken by policy makers to stabilise the economy, in combination with an end to the destocking cycle, is starting to result in a modest improvement in Chinese growth prospects. This is also consistent with the message from key commodity markets. As can be seen Figures 1 and 2 today, the turnaround in the PMI is consistent both with the recent price action in base metals, and also key commodity gauges more broadly.
Boosting other obvious, and not-so-obvious, China plays
Other key indicators tell a similar story. Figure 3 other the page shows that HShares are correspondingly turning higher (although on this metric appear to have some way to run yet). Meanwhile Figure 4 reminds us that given the importance of the German-Chinese growth nexus, the lift in EUR/USD is also likely due in part to the boost a recovering Chinese economy is giving to the German, and hence broader eurozone, recovery.
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