Chinese PMI holds below 50 in January

Monday, February 02, 2015

China’s manufacturing PMI reading posted a surprise fall to 49.7 in January holding below the 50 point mark that separates contraction from expansion for the second straight month. HSBC’s final PMI reading for January came in at 49.7 pushing the yuan back to levels last seen in June 2014 as it neared its trading band limits. The currency declined to 6.2604 against the dollar, reaching the 2% daily divergence limit as investors turned pessimistic and struggled to find the justification for extended risk taking. Mainland Chinese benchmark stock indices fell for a fifth straight session with financials and industrials leading the move lower. Investors will be paying close attention to how the PBOC reacts to the current sell-off; however, the majority of market participants polled by Bloomberg do not expect a widening of the trading band for the yuan as policymakers have other more pressing matters to attend to.

The situation in the eurozone showed further signs of deterioration last week after Germany’s inflation rate fell to -0.5% y/y in January. Market participants polled by Bloomberg had expected the CPI reading to decline to -0.2% from 0.1% the previous month, however, concerns surrounding the euro since the start of the year prompted investors to hold off from committing sizeable positions until further clarity was gained from policymakers. The ECB’s decision to inject over €1tn in stimulus in a bid to combat inflation in the eurozone is hoped to turn the tide and prevent the single currency union from falling further into deflation but a number of both political and economic issues present significant obstacles to central bankers and policymakers alike.

Officials in the eurozone expressed heightened concerns regarding Greece’s stubbornness over its bailout, with investors uncertain that the newly appointed cabinet will be able to steer the country clear of further financial worries. Greece’s new finance minister, Yanis Varoufakis hinted it would take up to four months before any new agreement with creditors was accepted from both sides. He went further to state that Athens would reject any additional loans under the international rescue plan despite the impending expiration of a $172bn bailout at the end of the month. Despite the ongoing uncertainty surrounding a possible deal between Greece and its lenders, the euro has managed to find firm support towards 1.280 against the dollar as uncertainty surrounding ECB action and the path Greece would take has broadly dissipated.

China's PMI reading falls below 50.0 in January

MPMICNMA Index HSBC China Manuf 2015 02 02 07 28 24

RMB weakens to levels seen in June last year 

CNY Curncy China Renminbi Spot 2015 02 02 07 32 05

German deflationary pressures continue

GRCP2HYY Index Germany HICP Yoy 2015 02 02 07 45 38

EUR stabilises above 1.280

EUR Curncy Euro Spot Daily 02 2015 02 02 07 55 28

Events for today

0135

JP

Jan

Manufacturing PMI

0145

CN

Jan

HSBC Manufacturing PMI

0855

DE

Jan

Markit Manufacturing PMI

0900

EZ

Jan

Markit Manufacturing PMI

0930

UK

Jan

Markit Manufacturing PMI

1330

US

Dec

PCE & Personal Income

1445

US

Jan

Markit Manufacturing PMI

1500

US

Jan

ISM Manufacturing

1500

US

Dec

Construction Spending

Topics: ECB, PMI, EUR, PBOC
More from: Kash Kamal