China: Manufacturing sector moving deeper into contraction territory - TDS

Analysts at TD Securities note that China’s manufacturing PMI dropped to 49.2 in February from 49.5 last month, moving deeper into contraction territory.

Key Quotes

“Chinese New Year shutdowns will have had some impact, with five less working days in Feb. There was a little bit of a silver lining, with new orders edging back to expansion at 50.6 but almost every component weakened.”

“In particular, manufacturing output fell into contraction at 49.5, the lowest read since Jan 09. Employment fell further, backlog of orders fell to its lowest since Dec 15, and the trade outlook worsened, with new export orders and import orders dropping to their lowest since Feb 09.”

“The non-manufacturing PMI also dropped to 54.3 in Feb from 54.7 previously. The manufacturing data will heighten concerns among Chinese officials on China’s growth outlook. Next week, China will present its 2019 budget and we could see fiscal policy announcements adding to the tax cuts etc that have been previously announced. CNY is likely to remain firm around trade talks.”