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Analysts at Nomura point out that China’s official manufacturing PMI (which reflects sequential growth) dropped to 50.2 in October from 50.8 in September, surprising the market on the downside (Consensus: 50.6; Nomura: 50.4) and also coming in much weaker than the average prints for January-September 2018 (51.2) and for 2017 (51.6).

Key Quotes

“By component, the new orders sub-index fell to 50.8 in October from 52.0 in September (Jan-Sep 2018: 52.6; 2017: 53.1), while the production sub-index fell to 52.0 from 53.0 (Jan-Sep: 53.0; 2017: 53.9).”

“We believe the import expo to be held in Shanghai in early November has somewhat constrained production in the manufacturing-heavy Yangtze Delta area, but even without this effect, the PMI would have fallen on lower orders and worsening market sentiment.”

“We expect a worse growth slowdown in spring 2019 for several reasons (especially after export front-loading). Beijing’s policy focus so far has been on containing a credit freeze. If our more cautious views prove to be valid, growth will likely slow to such a worrying pace in spring 2019 that Beijing may have to greatly ramp-up its easing/stimulus measures at that time.”