China’s Manufacturing Data Disappoints and Impacts Aussie Market

Seems things are slowing in China.

Over the weekend, China’s National Bureau of Statistics released their official manufacturing Purchasing Manager’s Index (PMI) numbers for February.

While analysts were expecting PMI to come in at 51.1, the number came in lower, at 50.6, a drop from January’s 51.3. The Caixin China General Manufacturing PMI told a similar story with activity in February dropping to 50.9, down from 51.50 in January.

The PMI is an economic indicator that measures manufacturing trends. Anything above 50 means that the economy is growing, while anything below indicates a contraction.

China’s activity is slowing

China’s manufacturing activity hit a high of 52.1 in November but has since been trending down. The measure collapsed to a low of 35.7 in February last year after the virus shut down China’s economy.

While this month’s numbers are still above 50, this is now the lowest measure since May last year. The drop in the manufacturing index had to do with China receiving less export orders from abroad. New export orders fell from 50.2 in January to 48.8 in February.

Not surprising, considering that much of the world has been in lockdown through the winter to fight off the virus.

Some Aussie commodity producers are trading lower today

It’s likely partly to do with the news coming out of China. A slower Chinese economy could hit demand for commodities like oil, copper or iron ore.

At time of writing, energy companies like Oil Search Ltd [ASX:OSH], copper producer Oz Minerals Ltd [ASX:OZL] and iron ore producer Fortescue Metals Group Ltd [ASX:FMG] are all trading lower today.

Iron ore has been on a high this year after Brazil’s iron ore giant Vale struggled to maintain activities running, along with the fact that Chinese demand has stayed strong. China is the largest consumer of iron ore in the world.

A slower demand from China could push iron ore prices lower…which could also put downward pressure on the Aussie dollar.

How will the Aussie dollar move next?

Check out our latest report, ‘Will the Aussie Dollar Enjoy a Post-Pandemic Resurgence?’ where editor Greg Canavan from The Rum Rebellion tackles this question.

To download his free report, click here.

Best,

Selva Freigedo

 


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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