Chinese official manufacturing and services PMIs for the month of November are due on Thursday at 0100 GMT, while Caixin’s respective measure for the manufacturing sector is scheduled for release on Friday at 0145 GMT.
According to analysts’ projections, the official manufacturing PMI will decline to 51.4 in November from October’s 51.6. Despite the ongoing rebalancing in the Chinese economy resulting in the services sector playing an ever more prominent role in terms of contribution to economic activity, the bulk of attention still remains on the release of manufacturing PMI figures, with no polls for services PMI being released. The Caixin manufacturing PMI, which compared to the official figure focuses more on small and mid-size businesses, is also expected to reflect a minor slowdown, falling to 50.9 from October’s 51.0. A reading of 50 reflects zero sectoral growth.
Should manufacturing activity indeed decline, then this is not necessarily a negative sign – at least not in its entirety – for the world’s second largest economy as it would be partially attributed to the government’s efforts to curb pollution in its attempts to shift focus to the quality of growth rather than merely the quantity. Along similar lines, a clampdown of financial risks could also act as a drag on activity by virtue of higher borrowing costs. It is not just government efforts for better quality expansion that are weighing on manufacturing growth though, as weaker export orders are adding downward pressure on Chinese factories’ activity as well.
It should be noted that if the official gauge of manufacturing activity comes below October’s as expected, this would mark the second straight month of declining activity, though, in a sign of resilience, it would also constitute the 16th consecutive month of growth (i.e. a reading above 50).
Besides movements in the yuan, the Australian dollar will be closely watched by forex market participants when the above data become public, as the Australian currency is considered a liquid proxy for China’s economy due to the two nations’ strong trade ties.
An upside surprise in the figures, could push aussie/dollar higher. In such an event, the pair might meet resistance around the two-week high of 0.7644 recorded earlier in the week. Should the slowdown in activity be sharper than anticipated, then aussie/dollar is likely to head lower. In this case, the pair could find support around 0.7529, this being the five-and-a-half-month low recorded on November 21.
It should also be taken into account that Australian data that have the capacity to generate movements in the aussie will also hit the markets tomorrow. Those include building capital expenditure and private new capital expenditure due at 0030 GMT.
