Monday, April 22, 2013

China Mfg PMI - Down From Here?

HSBC Flash Mfg PMI was just released. It came in weaker than expected. This is nothing new though. I already showed before how both HSBC and CFLP Mfg PMIs usually top around this time of the year. As the matter of fact, CFLP Mfg PMI has topped for the entire year in April (once in March) five out of the last six years. If this year is no different, Chinese economy may be a lot weaker than many think. Here is the reason why (look at the chart below). In all instances when CFLP topped in spring (marked by the vertical yellow line), it was much higher above the 50 (no change) line than now. If we assume that the current level is the highest of this year, it will not take a lot to push the index way below 50 (into contraction territory) very soon.

There are always doubts about the economic numbers coming out of China. But HSBC (privately collected data) keeps the official (govt) numbers in check. CFLP Mfg PMI is due to come out next week. I think that it will be the second most important economic report (with April NFP being the first) for the entire financial market next week, and the most important one for commodities.

click on chart to enlarge

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