• Manufacturing PMI slightly higher than anticipated
  • Non-Manufacturing PMI lower than anticipated
  • Lingering effect of trade war?

Early during the New Year’s Eve session, the Chinese released Purchasing Managers Index figures for the previous month, both the Manufacturing and the Non-Manufacturing versions. This measures the purchasing by business managers across China and is considered to be a leading indicator of where the economy is heading. As purchasing managers are at the forefront of where the economy is going, whether they are purchasing or not signals whether there is going to be confidence going forward.

The announcements

The Manufacturing PMI figure came out at 50.2 for the month, better than the anticipated 50.1 figure, but just barely so. That being said, the market will look at this as a minor victory at best, considering that anything under 50 is considered to be contractionary. The Nine Manufacturing PMI figure came out at 53.5, lower than the anticipated 54.2 figure. This, of course, is a disappointment and will ultimately be reflected in risk appetite. Having said that, this is not a good sign, but the question remains as to whether or not there is going to be a continuation of this pattern.

The big picture

The big question is whether or not this will continue. It will be interesting to see the figures coming out next month because people will be seeing a reaction to the idea of a “Phase 1 deal” being signed.

The market will most certainly be paying attention to the next set of figures.

The question now isn’t so much whether or not the trade war weighed upon the confidence of purchasing managers but whether they also see the potential signing of an initial deal between the United States and China as a bullish sign going forward. One would assume they do, though the market will most certainly be paying attention to the next set of figures.

Ultimately, the question then is that if we get a better reading next month, is the danger behind us? If the readings are still poor, then it shows something much more heinous is going on behind the scenes. If that’s going to be the case, then you will more than likely see more of a “risk off” type of move. There is a lot of concern around the world, so as with all other Chinese economic figures, a lot of attention will be paid to how things turn out.

As we are heading into the new year, money managers will be looking to put money to work. The question now is whether or not they will buy safer assets such as bonds, or are they going to stretch out into equities even further?

Another thing to pay attention to will be the USD/CNH pair, since it can give us an idea as to how the world is feeling about global expansion via the Chinese currency. At this point, we are in theory at a major juncture, so the next 30 days could end up being a relatively crucial month as far as confidence is concerned for traders around the world.

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