China's Caixin Manufacturing PMI Falls Below 50 Due to Softened International Demand

• The Caixin Manufacturing PMI declined from 50.6 in September to 49.5 in October.

• Subdued international demand had a negative impact on output, leading to a contraction in the sector.

• This is followed by the release of US labor market data and the highly anticipated Federal Reserve interest rate announcement and subsequent press conference.

The China Caixin Manufacturing PMI fell below 50 On Wednesday, the focus was on the China Caixin Manufacturing PMI after weaker NBS PMI numbers on Tuesday. The Caixin Manufacturing PMI unexpectedly dropped from 50.6 to 49.5 in October. Economists had predicted an increase to 50.8.

According to the October Survey,

1. Production declined for the first time in three months, impacting the headline PMI.
2. New orders saw a marginal increase for the third consecutive month.
3. Firms linked lackluster demand to a weak macroeconomic environment and high prices.
4. New export orders decreased for the fourth consecutive month.
5. Weak demand and reduced production affected purchasing activity, which decreased for the first time since July.
6. Manufacturers reduced staffing levels for the second successive month, with the rate of job cuts being the most pronounced since May, attributed to weak demand and cost-cutting efforts.
7. Input prices rose at the most marked pace since January, resulting in higher factory gate prices.
8. Business confidence for the next 12 months hit the lowest level since September 2022.

These latest manufacturing PMI figures raise concerns regarding external forces on the Chinese economy and the effectiveness of recent stimulus measures.

The AUD/USD Reaction to the China Caixin Manufacturing PMI Before the PMI release, the AUD/USD reached $0.63436 before falling to $0.63234.

Subsequently, in response to the PMI numbers, the Aussie dollar dropped from 0.63343 to a low of $0.63182.

As of this morning, the Aussie dollar was down 0.22% to $0.63230.

Next Up

Later in the Wednesday session, investor attention will shift towards ADP nonfarm and JOLTs Job Openings. Tighter labor market conditions could fuel expectations of a more hawkish Fed rate path. Economists project a 150k increase in employment in October for ADP, while economists expect a reduction in JOLTs Job Openings from 9.61 million to 9.25 million in September.

While the data will attract interest, the focus will ultimately be on the Fed interest rate decision and press conference. Economists anticipate the Fed to maintain interest rates at 5.50%. Should there be a surprise Fed rate hike, attention will turn to the Fed press conference. A hawkish Fed Chair Powell and mounting expectations of a December Fed rate hike could impact market risk sentiment.