China's Caixin Manufacturing PMI Maintains 50.8 in January Despite Stimulus Efforts

The China Caixin Manufacturing PMI indicated conflicting trends, with worries persisting over diminishing domestic demand and pressures on factory gate prices.  

Highlights

• The China Caixin Manufacturing PMI stayed steady at 50.8 in January.
• Increased foreign demand balanced out a decrease in domestic demand.
• Later today, it is important to take into account the US manufacturing PMI figures and labor market data.  

China's Manufacturing Sector Shows Sluggish Growth in January

The Chinese economy attracted attention on Thursday. Poor NBS private sector PMI numbers for January affected riskier assets on Tuesday. However, the Caixin Manufacturing PMI holds more significance.

The Caixin Manufacturing PMI maintained a level of 50.8 in January. Analysts had anticipated a drop to 50.6. Based on the January survey:

• New business expanded at the slowest rate since October 2023.
• Overseas demand registered an increase for the first time since June 2023, albeit slight.
• Manufacturers responded to the uptick in foreign demand by increasing their purchasing activity.
• Companies decreased their workforce, although the rate of decline was the smallest in five months.
• Input prices experienced moderate growth, while the competitive environment influenced factory gate prices.
• Nevertheless, business confidence for the next 12 months was the highest in nine months.  

Key Insights from January Survey

Concerns may escalate due to diminishing domestic demand, despite Beijing's efforts to stimulate the economy. While there has been a slight improvement in demand from international markets, the trends in factory gate prices still indicate a deflationary environment.

The Australian Dollar's Response to the Caixin Manufacturing PMI

Prior to the PMI figures, the AUD/USD climbed to a peak of $0.65782 before dropping to a low of $0.65603.

Nevertheless, following the PMI data, the AUD/USD surged to a high of $0.65670 before declining to a low of $0.65595.

By Thursday, the AUD/USD had decreased by 0.09% to $0.65606.  

010224 AUDUSD 3 Minute Chart

Upcoming Events: Focus on US Manufacturing PMIs and Labor Market Data

Investor interest will center on the upcoming US Manufacturing PMIs and labor market data. Prior to the US Jobs Report on Friday, labor market data is expected to garner more attention. The current tight labor market conditions are anticipated to support wage growth, stimulating consumer spending and demand-driven inflation.

Economists are projecting a 1.6% quarter-on-quarter increase in unit labor costs in Q4 2023, following a 1.2% decline in Q3 2023. Additionally, nonfarm productivity is anticipated to rise by 2.5% in Q4, down from a 5.2% increase in Q3. Notably, economists expect initial jobless claims to decrease from 214k to 212k for the week ending January 27.