China Manufacturing Weakens

China’s manufacturing expanded at the weakest pace this year as new orders and export demand dropped, showing the government has yet to arrest an economic slowdown.

The Purchasing Managers’ Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said. That compares with the 49.9 median estimate in a Bloomberg News survey of 24 economists. A reading above 50 indicates expansion.

Today’s data increase the odds Premier Wen Jiabao will introduce more stimulus to stem a deceleration in the world’s second-biggest economy that may have extended into a sixth quarter. The central bank will fine-tune economic policies in a “timely and appropriate” manner, central bank Governor Zhou Xiaochuan said on June 29.

“Although the PMI is slightly better than consensus, the underlying trend still indicates a deterioration in economic activity,” said Shen Jianguang, Hong Kong-based chief Asia economist for Mizuho Securities Asia Ltd. “Further monetary easing is warranted, with two interest-rate cuts and reserve ratio cuts in the second half increasingly likely.”

The People’s Bank of China lowered interest rates last month for the first time in more than three years and reduced the amount of cash banks must set aside as reserves three times starting in November.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell