Manufacturing activity in China fell to a 6½-year low in September according to the latest PMI survey from Caixin. The flash reading showed manufacturing PMI falling to 47.0 in September from 47.3 in August. This was below estimates of 47.5 and was the 7th consecutive month that the reading was below 50. The data does little to indicate that the slowdown in China is bottoming out.
China’s President, who is visiting the US, said that Beijing remains committed to economic reform and pledged not to devalue the currency.
Asian equities were all in negative territory on Wednesday after the data, with the Shanghai SE Composite index down 1.7% in late Asian session. The Australian dollar, which is regarded as a liquid proxy for China’s economy, fell by 0.9% against the US dollar on the disappointing data. It recovered slightly in late Asian trading to 0.7038. The kiwi, which is also vulnerable to commodity prices, also fell sharply and was down at 0.6262 against the greenback.
Crude oil prices mostly shrugged off the weak China factory data and WTI futures were up 0.1% at $46.40 in late Asian session. But copper prices were hit hard even before the data came out on speculative trading, closing down by almost 4% on Tuesday at $229.75.
The euro moved away from the day’s lows of 1.1104 dollars after manufacturing PMI data for France showed a surprise rise in output. Flash PMI for September rose to 50.4 from 48.3 in August, much higher than expectations of 48.6. The single currency climbed to 1.1137 against the dollar in late Asian session and was trading at 0.7252 against the pound.
The yen rose against major currencies after China’s PMI data, benefiting from its safe-haven status. But the dollar soon bounced back, rising to 120.11 yen from a low of 119.62 yen after the data. The pound remained under pressure against the greenback as it hovered around 1.5350 dollars for much of the Asian session.
Coming up later in the day, PMI data for Germany and the Eurozone will be the main data coming out of Europe. But ECB President Mario Draghi’s testimony before the European Parliament could get more attention as analysts watch out for more signs of further quantitative easing by the ECB. In the UK, a speech by Bank of England MPC member Ben Broadbent will also be one to watch as Broadbent talks about the UK labor market – a key determinant of assessing monetary policy. Over in the US, flash manufacturing PMI for September and a speech by the Fed’s Lockhart will be the main movers for the dollar.