China’s Caixin Manufacturing PMI Shows Growth Due to Strong Domestic Demand

China Manufacturing Sector Sees a Boost in December

There’s been a new surge of attention on the Chinese economy, with the all-important Caixin Manufacturing PMI drawing investor interest, following disappointing NBS private sector PMIs.

In November, the Caixin Manufacturing PMI hit a three-month high of 50.7, up from 49.5. Economists had initially expected an increase to 49.8.

According to the November survey,

• New orders saw a significant increase, with manufacturers citing firmer market conditions as the reason.
• However, new overseas orders declined, highlighting the weak global demand environment.
• Purchasing activity expanded, while the decrease in purchase stocks was less pronounced.
• Supply chain conditions improved for a second consecutive month.
• The uptick in demand led to the slowest rate of job shedding in the three-month cycle of staff cuts.
• Average input costs increased modestly, while factory gate prices remained flat compared to October.
• Manufacturer optimism reached its highest level since July due to a hoped-for uptrend in demand.

Key Takeaways from the Survey

The pickup in domestic new orders indicates that Beijing’s stimulus measures are providing modest support. However, a more substantial stimulus may be needed to bolster the economy amid a weak global macroeconomic backdrop.

While domestic new orders are on the rise, the sector remains susceptible to the risk of another contraction. A more significant decline in overseas demand could have a more pronounced impact on sector activity. Overseas demand needs to materialize to deliver a more marked pickup in sector activity.

The Aussie Dollar Reaction to the Caixin Manufacturing PMI Survey

The AUD/USD initially fell to a low of $0.66016 before jumping to a high of $0.66245.

In response to the PMI survey, the AUD/USD rose from an opening price of $0.66235 to a high of $0.66278.

The better-than-expected report suggests a pickup in demand from China, which accounts for one-third of Australian exports. Increased Chinese demand would be a boon for the Australian economy and the Aussie dollar, given Australia’s trade-to-GDP ratio above 50%.

This morning, the AUD/USD was up 0.35% to $0.66273.

011223 AUDUSD 3 Minute Chart
Next Up

Manufacturing PMI numbers from the euro area and the US will be in focus throughout the day.

However, central bank speeches will likely draw more investor interest. With ECB President Lagarde and Fed Chair Powell speaking, it could have significant sway on the global financial markets. Fed Chair Powell delivers speeches infrequently, so support for an H1 2024 Fed rate cut could prompt a sink in the US dollar.

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