Official PMIs Expected To Weaken For August

A reminder that tomorrow sees official China PMIs print for August. The market expects both the manufacturing and services side to have lost momentum in the month. The market consensus for the manufacturing outcome is 49.2 (prior was 49.3, while the forecast range is 48.6 to 49.6). On the services side the forecast is 51.2 (prior was 51.5, forecast range is 50.5-52.0). The composite PMI printed at 51.1 in July, but there is no consensus estimate for this index.

• Headwinds persist in terms of property sector woes and restrained consumer spending, which is expected to weigh on services related activity in the month. This is also fits with the weaker equity tone over the past month, despite renewed policy efforts to support the economy.
• Note the Standard Chartered China SME index edged slightly higher in August to 50.8 from 50.7, see the chart below. The SC measure isn't suggesting a sharp turnaround though, which would also go against the headwinds outlined above.

Fig 1: Standard Chartered China SME Index Versus Services PMI

Source: Standard Chartered/MNI - Market News/Bloomberg

• On the manufacturing side, similar headwinds could be in play, albeit with government spending in the infrastructure area potentially providing some offset. External demand gauges will also be eyed, with export trends to China still fairly weak.
• The China Emerging Industry PMI has also printed for August, rising to 48.1 from 47.1 in July. Still the official manufacturing PMI rose in July, while the emerging industry PMI fell sharply, so the recent directional correlational is not that strong.