Two separate manufacturing surveys for October confirm the headwinds still facing Chinese manufacturers, which are currently mired in a downturn. The official manufacturing PMI was unchanged at 49.8 in October against expectations it would rise to 50.0, figures released by the National Bureau of Statistics showed on Sunday. This was the third month in-a-row of a reading in contraction territory below 50. The non-manufacturing PMI fared better at 53.1, though this was slightly weaker than in September.
The alternate measure from Caixin, released today, was also below 50, but the rise from 47.2 to 48.3 may be a sign that the slump in manufacturing activity seen since that start of the year is bottoming out. Government authorities in China have been attempting to stimulate economic growth since late 2014, with cuts in interest rates and the reserve ratio requirement, as well as a raft of economic reforms.
Apart from the rate of contraction slowing in October, there was further encouragement in the Caixin report, with export orders rising for the first time since June. New business orders declined at a more moderate pace as a result. However, it may be too early to assess whether manufacturers are heading for a turnaround as another indicator – Chinese industrial profits – continued to fall in September.
China’s economic growth rate fell below 7% in the third quarter of this year for the first time since the financial crisis in 2009. At 6.9%, the annual rate is still one of the highest in the world but may no longer be enough to act as the growth engine for emerging markets, and to a lesser extent for Western economies. China’s currency, the yuan fell on Monday following a 0.6% gain on Friday, which took it to the highest level since August 11 when it was devalued. It closed down 0.3% at 6.3379 dollars on Monday.
As manufacturers globally struggle to compete in an environment of subdued demand, Eurozone manufacturers have seen their fortunes improve since the European Central Bank launched its quantitative easing program earlier this year. The weaker euro has been the main factor in this recovery but US and UK manufacturers have suffered as diverging monetary policies have pushed their currencies higher.
The final Eurozone manufacturing PMI for October was revised higher to 52.3 from 52.0 in the flash survey. It was driven by strong rises in Italy and Netherlands and a sharp rebound in Greece where output had plummeted over the summer before the latest bailout was agreed. The UK also saw a surprise bounce in manufacturing activity in October following a recent soft patch in the sector. Manufacturing PMI rose to 55.5 in October from an upwardly revised 51.8 in September, which was well above estimates of 51.4.
The euro received only a modest boost from the positive PMI data as dovish comments from the ECB’s Ewald Nowotny in an interview on Monday had pushed the euro down to 1.1011 dollars. The single currency rebounded to 1.1031 dollars after the data before dropping back to 1.1017 in mid-European session. The pound meanwhile jumped to 1.5497 against the dollar on the better-than-expected UK manufacturing PMI.
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