Chinese Caixin Manufacturing PMI Indicates Growth Driven by Domestic Demand

• The manufacturing industry in China experienced growth again in November.
• International orders continued to decline, but domestic demand was bolstered by Beijing's stimulus policies.
• Later today, the actions of Fed Chair Jerome Powell are likely to impact market risk sentiment.  

The Chinese manufacturing sector saw modest growth in December, drawing attention after the disappointing NBS private sector PMIs. The influential Caixin Manufacturing PMI increased from 49.5 to a three-month high of 50.7 in November, surpassing economists' forecast of 49.8.

In November, new orders in China grew at the fastest rate since June, attributed to improved market conditions, while overseas orders declined, reflecting global demand weakness. Purchasing activity expanded, and the rate of decrease in purchase stocks eased. Supply chain conditions improved for a second consecutive month, and job shedding slowed. Average input costs rose modestly, while factory gate prices remained flat compared to October. Manufacturer optimism increased to the highest level since July.

Notably, the uptick in domestic new orders suggests that Beijing's stimulus measures are providing modest support, but the sector remains vulnerable to the risk of contraction due to a more significant decline in overseas demand. The Australian dollar reacted positively to the PMI survey, rising from an opening price of $0.66235 to a high of $0.66278, indicating a pickup in demand from China.

The AUD/USD was up 0.35% to $0.66273, but the focus is now on manufacturing PMI numbers from the euro area and the US, as well as central bank speeches, particularly from ECB President Lagarde and Fed Chair Powell. Fed Chair Powell's rare speeches could significantly influence global financial markets, affecting support for an H1 2024 Fed rate cut and the US dollar.