China: Falling manufacturing PMI points to stronger headwinds in spring 2019 – Nomura

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.”