Weak Details In PMI Prints, Softer Price Gauges Likely To See Easing Calls Persist

It is hard to find many positives in terms of the China official PMI results. On the manufacturing side, output is back below the 50 expansion/contraction point (49.6 in May from 50.2). New orders eased to 48.3 from 48.8, while employment is back to 48.4. New export orders also declined to 47.2 from 47.6.

• Interestingly, there was also a sharp drop in both input prices and output prices. The input measure back to 40.8 from 46.4, while output prices eased to 41.6 from 44.9. This is likely reflective of the softer commodity price backdrop, but doesn't suggesta robust demand backdrop either. The correlation is stronger between the PMI input price measure and the PPI rather than CPI. Still, we will likely see easing calls persist.
• By scale of enterprise, activity in larger enterprises held up better relative to smaller enterprises .

Fig 1: China Manufacturing PMI Versus China IP Growth

Source: MNI - Market News/Bloomberg

• It was a similar story on the services side, albeit with index levels at higher starting points. Input prices fell to 47.4 from 51.1, while selling prices eased to 47.6 from 50.3. The second chart below overlays input prices for both the manufacturing and services side,
• New orders fell sharply as well to 49.5 from 56.0.

Fig 2: China PMIs - Input Prices Down Sharply

Source: MNI - Market News/Bloomberg