PMI data underwhelms but it doesn’t matter

China Manufacturing PMI misses target

China’s Manufacturing PMI data has disappointed today, clinging to expansionary territory but increasing fears that Asia’s powerhouse is slowing. On Saturday, official Manufacturing PMI fell to 50.4, well below the 50.8 expected, while today’s Caixin Manufacturing PMI for July tumbled to 50.3, well below the 51.0 expected. Notably, in this morning’s Caixin number, the new export orders sub-index plunged to 47.7.

Across the rest of Asia, Manufacturing PMIs were very much a mixed bag. Australian, Japan, South Korea and Taiwan’s Manufacturing PMIs remained solidly expansive, but regional Asia sagged well into contractionary territory, with Thailand falling to 45.7, Vietnam to 45.1, Malaysia to 40.1 and Indonesia collapsing to 40.1 also. Supply chain woes are affecting everybody to some extent, especially China with semiconductors, and magnified by the US entity list. But in regional Asia, It appears that the delta-variant gripping the region is making its presence felt in the data.

That had led to an interesting divergence in the morning session, with US index futures, the Nikkei and Australia performing strongly, after Wall Street finished Friday on a soggy note, while China markets sank. The PMI data and the emergence of 98 new cases of Covid-19 on the mainland weighing on sentiment. However, much as investors started the week elsewhere in the inevitable buy-the-dip mode, so it became for China markets which have rallied strongly with a heavy flow of funds down the Stock Connect pipeline from international investors.

Sentiment may also have been helped by the unveiling of the bi-partisan US infrastructure bill at a special Sunday sitting of the US Senate. Totalling around USD 1 trillion, it contains USD 550 billion of new spending over five years.

Being the first week of the month, the data calendar is heavy internationally, culminating in this Friday’s US Non-Farm Payrolls. Pan-Asia inflation data is released tomorrow. Although it is likely to show supply-chain-driven upward price pressures, concern over the delta-variant engulfing the region will likely offset that data. With lockdowns spreading in Australia, with no end in sight for Sydney, the RBA policy decision should be a non-event tomorrow, with Covid-19 delta-variant giving the RBA all the excuses it needs to stay firmly in the uber-dovish corner.

In contrast, New Zealand releases employment data tomorrow. A strong result will make a rate hike by the RBNZ at its next policy meeting a certainty in the minds of most analysts. The New Zealand dollar is likely to rally powerfully versus the Australian and US dollars if employment data is robust.

Similarly, South Korean trade data released over the weekend show a significant jump in imports, hinting that domestic demand continues to recover. That will keep the Bank of Korea on track to hike in Q4, although the won will stay under pressure in the shorter term as the US dollar remains strong and the PMI data across Asia suffers delta-wobbles.

The delta-variant is likely to stay the hands of both the Reserve Bank of India and Bank of Thailand this week as well. Realistically, only the RBI was an outside chance to hike, given that inflation remains stubbornly above its target range, something that ever-higher oil prices will complicate. Thailand remains in a virus-induced slow down anyway, but the RBI is more likely to focus on supporting a post-second-wave recovery, than worrying about inflation right now.

The Bank of England will also hold fire; as news emerges today, Britain is preparing a mass third shot booster programme later in the year. However, Brazil will likely buck the trend, hiking by anywhere between 75 and 100 basis points later in the week. Wednesday will see the release of pan-Europe plus US Manufacturing and Services PMIs, and Thursday a swath of Asian CPIs.

There is plenty of data interspersed as well; however, I believe the week will be dominated by three themes. First, the trajectory of the Covid delta-variant, especially if cases rapidly increase in mainland China. That could cause another bout of virus-fright in global stock markets. The passage of the now released US Infrastructure Bill, which should be a positive for US markets, particularly Dow Jones and Russel 2000 inhabitants. And finally, all roads will lead to the US Non-Farm Payrolls on Friday, with preliminary estimates hovering around the 750,000 mark. That will probably change quite a bit as the week progresses, and after so much promise of 1 million+ number earlier this year, which never happened, the risks are skewed towards a lower number. US market will likely take severe fright if it comes in under 500,000 jobs added.



A quick update on the digital Dutch tulip. Bitcoin fell by 4.0% over the weekend for reasons I know not. Nevertheless, it continues to hold on to its 100-DMA at USD 39,880.00 with support at Thursday’s low at USD 38,300.00.


As long as Bitcoin holds above its triangle breakout at USD 34,300.00, it remains on track to rally in the coming hours, days, weeks. The target for the triangle breakout being around USD 51,000.00 of fiat US currency back by the tax-payer revenues of the United States.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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