By Orbex

There is only one event on the economic calendar for China this week. However, it’s of utmost importance and could influence quite a few currencies around the globe.

In fact, it could impact not just currencies, but commodities and equities. So it’s definitely something to keep an eye on!

This is the first release of Chinese data after the deadlock in trade talks at the start of the month. Quite a few developments have happened in the last four weeks to impact the trade relations between the world’s two largest economies.

Despite tit-for-tat retaliation recently, with China talking of restricting rare-earth metals exports, the US still refrained from labeling the country a currency manipulator.

With all this in mind, analysts are going to be very interested in the official and private PMI measures. These will tell them how the trade war is impacting growth and future expectations of businesses.

What We Are Looking For

The official NBS Manufacturing and Non-Manufacturing PMIs will be coming out tomorrow at 03:00 CET (or today at 21:00 EST.) The market will mostly focus on the manufacturing version.

The average among the survey of economists projects Manufacturing PMI to come in at 49.9. This is just one decimal below the contraction expansion line. A technical contraction would still be a negative sign, erasing two months of perceived optimism among Chinese manufacturers.

Other Indicators

As for the non-manufacturing PMI, we actually expect this to improve slightly to 54.5 from 54.3 in April. This sector is largely domestically facing, and the improved outlook is likely associated with the expectation that the Chinese government will continue or even increase stimulus spending.

The next event we’ll be looking at is Monday morning at 03:45 CET (Sunday at 21:45 EST.) This is the release of the private Caixin manufacturing PMI. 

Expectations are for it to stay barely in expansion territory at 50.4 compared to 50.2 in the prior month. Last time around, the Caixin survey gave a positive surprise. It stayed in expansion territory, despite expectations. Given the pessimism around the trade scenario, we should probably expect a disappointing result.

The Components are the Key

Last month’s PMI was dragged down primarily by the export section of the measure, both in the Caixin as well as the official survey. This was despite improvements in new orders and even employment. We can clearly see how vulnerable this indicator is to the trade situation.

The NBS PMIs survey a smaller number of larger companies, typically with a stronger state presence. However, recent government stimulus initiatives have largely been benefiting smaller companies, which the Caixin survey tracks more closely. If we have a discrepancy between the two numbers, it would show the impact of government stimulus.

The Broader Market

Disappointing PMIs could have a knock-on effect to China’s major trade partners, including Japan, Australia, and New Zealand. We’d want to look at the pricing component to see if Chinese companies continue to spend on materials and how that will influence commodity-based currencies.

By Orbex