The manufacturing and services PMIs in China both fell in June, with the latter falling more strongly. The composite PMI decreased as a result. All remained, however, in a state of expansion. PBoC is also happy with the current CNY trading range above USD/CNY 6.40, according to Mitul Kotecha, Chief EM Asia and Europe Strategist at TD Securities.
“In June, China’s purchasing managers indices (PMIs) were mixed. A drop in sentiment was caused by a drop in services and a modest drop in manufacturing. The manufacturing PMI fell to 50.9 in June from 51.0 in May, still expanding but at its lowest level since February. Although services continue to improve, the non-manufacturing PMI unexpectedly fell to 53.5 from 55.2 earlier. As a result, the June composite PMI fell to 52.9 from 54.2 in May, the lowest level since February.”
“Manufacturing mood is expected to be capped by a decreasing credit impulse as authorities strive to contain any build-up of debt, particularly in the real estate sector.”
“Monetary policy is likely to remain largely stable, with little pressure to tighten policy rates and a greater focus on liquidity by the PBoC.”
“The present CNY trading range above USD/CNY 6.40 appears to be comfortable for the PBoC. In contrast to the propensity for weaker fixes in prior weeks, CNY daily fixings vs. forecasts have been more varied recently, with no apparent tilt. The gap between market expectations and actual fixes has also shrunk, implying that the CNY has reached a temporary equilibrium. CNY has maintained within a pretty narrow range ahead of the Chinese Communist Party’s 100th anniversary tomorrow, and we expect little movement until the USD moves more strongly.”
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