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According to Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities (TDS), China’s official manufacturing PMI was stronger than expected in September but remained in contraction for the fifth straight month. Whether the bounce in PMIs can be sustained will in part depend on trade talks next week, but given the plethora of structural issues to be resolved, we are not holding our breath for a comprehensive deal, Kotecha added further.

Key quotes:

“The breakdown of the official manufacturing PMI revealed that output rose to 52.3, its highest since March and new orders moved back into expansion to 50.5, its highest since April. Employment edged higher but remained in contraction, its 88th consecutive reading below 50. New export orders remained in contraction but moved to its highest in just over a year. Import orders also edged higher.”
“Separately China’s Caixin PMI came in stronger than expected in September at 51.4 (TD 50.3, mkt 50.2) from 50.4 previously, its highest reading since January 2018. The Caixin PMI is focused on smaller and more export-orientated companies and likely benefited more than the official PMI from an improvement in credit conditions and hopes of progress in US-China trade talks. Renewed CNY weakness also likely helped.”
“Whether this is the beginning of a deeper turnaround or merely a blip largely depends in part on how the US-China trade talks will progress next week. President Trump has said a trade deal can happen “sooner than you think” but we are not holding our breath. Even though China has said it will buy more US goods, there are many structural issues that will be much harder to resolve. As such, we think PMI contraction will continue for a while longer.”