“The May official non-manufacturing PMI held at 54.3, but the manufacturing PMI disappointed, coming in 0.5 points below expected at 49.4,” note TD Securities analysts.
Key quotes
“Very unconstructive was the retrenchment in import and export demand sub-indices, suggesting sharp weakening in both external and internal conditions. While external weakness is correlated with the global cycle, it now stands to be further exacerbated by the sharp deterioration in U.S. trade relations.”
“Our greater concern however is the domestic weakness indicated by the import sub-index. When taken within the context of a drop in overall new orders following the Q1 credit surge, this data is highly suggestive that the seasonal boost from credit stimulus has had little self-sustaining momentum behind it, at least relative to other drag factors.”
“Making this very obvious is the sharp retrenchment in the small and medium-sized enterprise PMIs. These sectors are highly sensitive to targeted stimulus and economic conditions, more so than the SOE sector, suggesting fundamental weakness persists. Thus we expect further targeted stimulus to continue, and see fundamental pressure on CNY to 7.20, along with pressure on Asian FX (in particular SGD and TWD).”
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