China PMIs slow with Lunar New Year effect

February PMIs suggest China still in the sweet spot

The official NBS PMIs, alongside the Caixin manufacturing PMIs, had disappointed in the latest February reading, though having all sustained in expansion territory. Seasonal decline with the Lunar New Year holidays had largely been blamed for the latest slide seeing both the official and Caixin manufacturing readings slipping to the lowest reading seen since May 2020. Notably, demand was seen softening into February as per the new orders and new export orders counters but had largely been viewed to be a result of the Chinese New Year effects.

Over and above the slowdown in both demand and output for the month, the employment gauge had notably also declined with more cautious approach towards staffing levels reported to have sustained according to Caixin’s findings. This again supports more gradual removal of accommodation by the authorities and bodes well for the Chinese market. At the same time, despite the blip that we have seen with the headline number, driven by the holiday effects, firms continue to a positive view on outlook which suggests that things continue to look up for the Chinese economy.

The only caveat here would be the effect of rising commodity prices and the corresponding lift in input costs noted that may dent the performance for smaller enterprises and broad demand going forward, one worth the scrutiny here.

USD/CNH taking a breather from the downtrend

Rising US Treasury yields had lent a hand to the greenback following months of USD/Asians declines. Specifically for USD/CNH, the pair had seen strong support coming through at the 6.40 level that had led to a deviation from the multi-month downtrend channel. Although prices had attempted to trade above its 50-day moving average, signalling upward momentum picking up, it had met resistance towards the 6.50 level. The conflicting forces of rising UST yields and positive fundamentals for China, as illustrated through the latest PMIs updates, could keep the pair rangebound between the 6.40-6.50 level in the near-term awaiting fresh triggers.