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Chinese Manufacturing Slows - Will West Pick Up The Slack?

Last updated 2/1/2010 2:08 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Chinese Manufacturing PMI printed a tad lower than expectations at 55.8 versus 56.6 eyed but analysts were uncertain whether the slowdown in output was due to a moderation in economic activity or disruptions caused unusually cold weather conditions in January. In either case the PMI report registered its second best reading in 21 months indicating that growth in Chinese manufacturing remains robust with demand well above the 50 boom/bust line.

Cost pressures, however, continued to escalate as the inputs costs subcomponent rose to an 18 month high of 68.5 from 66.7 the month prior. At the same time employment growth moderated rising at the slowest pace in 6 months at 50.6 versus 52.2 in December.

Overall the PMI data confirms the latest market assessment of the Chinese economy - namely that while the recovery  continues at a healthy pace, rising price pressures will likely trigger a tightening in monetary policy   that could moderate growth as the year progresses. The key question going forward therefore is whether the demand from the rest of the G-20 universe can offset the natural slowdown in Chinese economic output which has been operating at double digit growth rates over the past several months. The risk trade in FX is contingent on such an outcome and so far the markets appear uncertain whether such rebalancing will take place in 2010.

The Chinese PMI data has little immediate impact on currency trade with most of the high beta FX carving out narrow ranges in Asian session dealing. Attention will now turn to the UK and US Manufacturing data due later in the day, as currency traders try to ascertain the pickup in activity in the West could propel the recovery trade forward and revive risk appetite in the capital markets.  

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Comments (2)

hsbc

February 01, 2010 at 03:00 AM ET

which pmi do u look at ? there are actually 2 that is released today.

bschlossberg

February 01, 2010 at 03:10 AM ET

The NBS-CFLP PMI

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.