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    China manufacturing PMI indicate slowdown, raise stimulus expectations

    Data out of China on Thursday indicated that the world’s second largest economy continues to show signs of a slowdown.

    China’s official purchasing manager’s index (PMI) printed a reading of 49.8 in September, rising from a reading of 49.7 in August. A figure below 50 indicates contraction. Concerns that China’s manufacturing activity contracted for the second consecutive month in September increases expectations of more stimulus measures by the country’s central bank. These could come in the form of interest cuts.

    The People’s Bank of China (PBOC) has cut rates five times since November. The recent two rate cuts this summer along with Beijing’s intervention in the markets has failed to stem a rout on China’s stock exchanges.

    Meanwhile a separate PMI report – the final Caixin/Markit PMI – came in at 47.2 in September, slightly up from a preliminary reading of 47.0 but was deterioration from August’s 47.3.

    China’s slowing economy has raised concerns across global markets. The country’s pace of growth is at its slowest in 25 years. Focus now shifts to the release China’s third-quarter growth estimate on October 19. GDP for the second quarter was reported at 7%, which was in line with the government’s official target for the year.

    China’s stock markets were closed on Thursday for National Day holiday, the start of a weeklong holiday. The Hong Kong stock exchange was also closed. However, other markets reacted positively to today’s PMI data. Japan’s Nikkei 225 gained 2.3 % and Australia’s S&P ASX 200 was up 1.7%. The Australian dollar rose back above the key US$0.70 level. China is a major trading partner of Australia.

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