Significant Increase in Sector Activity Noted in China's Caixin Services PMI

Highlights

• The China Caixin Services PMI increased from 51.5 to 52.9 in December.
• Both domestic and international demand rose, indicating a better macroeconomic environment.
• Next, we have the latest data on the US labor market.

China's Caixin Services PMI attracted attention on Thursday, sparking renewed concerns about the country's economy in the new year, especially in comparison to the NBS private sector PMIs.

In December, the Caixin Services PMI surpassed expectations by rising from 51.5 to 52.9, marking the fastest pace of expansion in the service sector in five months. Key findings from the survey indicated that service sector companies experienced improved market conditions, resulting in increased new business and activity. Moreover, overseas demand for Chinese services notably surged, leading to the first increase in staffing levels in three months. The report also highlighted an accelerated increase in input costs, while selling prices rose at a slower pace due to competitive pressure. Despite the positive outlook for 2024, business sentiment remained below the long-run average.

This uptick in service sector activity was attributed to the positive impact of economic stimulus measures implemented by Beijing. Importantly, the influential Caixin survey-based report presented a more optimistic view compared to the NBS survey-based report, as reflected in the NBS Non-Manufacturing PMI's modest rise from 50.2 to 50.4 in December. In a similar vein, the Caixin Manufacturing PMI marginally increased from 50.7 to 50.8 during the same period.

The release of the China Caixin Services PMI triggered a response in the AUD/USD currency pair's value, as it initially dropped to $0.67219 before recovering to $0.67359. Subsequently, following the publication of the December figures, the Australian dollar rallied from $0.67246 to $0.67337 but was seen slightly diminishing to $0.67302 at the time of reporting.  

040124 AUDUSD 3 Minute Chart

Up Next

Next, on Thursday, the economic indicators related to the US labor market will be important for investors to watch. ADP employment change and initial jobless claims will be of particular interest. If the labor market conditions remain tight, it could decrease the likelihood of a Q1 Fed rate cut.

Additionally, the US service sector PMI numbers will also have an impact on the Federal Reserve's interest rate plans.

Following the hawkish tone of the FOMC Meeting Minutes, investors might pay closer attention to the US statistics.