The Services sector continues to lead Chinese growth according to today's Caixin report, citing that the manufacturing index has "broadly stagnated" whilst services expansion remained "modest overall".
New orders, often considered as leading indicator for the PMI read itself, reported a faster rise whilst new business expanded modestly for the 2nd consecutive month for both composite and service PMI reads.
Monitoring the spread between manufactuiring and services
Services expanded at 51.8 but at a slower rate when compared with last month by -0.4%. Manufacturing contracted at 49.4 and expanded the rate of contraction slightly by 0.3%. Whilst there is no hard and fast rule regarding the relationship between the two reads I have noted the potential cycles on the differential between manufacturing and services which suggest we may see manufacturing accelerate to the downside, widening the gap between the two sectors and increasing the spread between them. If correct this would also weigh down on the composite to send it closer to 50 over the coming months. As said this is not a guarantee but something to monitor over coming months as this would weigh down on global sentiment if correct.
Up Next for China
For this week we have FX reserves Friday before receiving latest trade balance data over the weekend. Foreign Direct investment on Monday with M2 money and new loans on Thursday provides the last in the set of money flows for China, with Tuesday presenting inflation data for consumers and producers. Finally, next weekend China presents retail sales and industrial production, so we have plenty of data next week to mull over and make or break investor confidence.
China Services PMI moves in lockstep with global reads
The synchronicity of reads lately has been highlight correlated not just in China, but across other major global reads as we see China services expand but at a softer rate.