China's Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.4 in April from 49.7 in March, according to Markit. The reading missed Reuters' forecast for a reading of 49.9. The index was last in expansionary territory in February 2015. Data follows China's official manufacturing PMI, a competing gauge, came in at 50.1 in April compared with 50.2 in March, according to data from the National Bureau of Statistics on Sunday.
"The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn." said He Fan, chief economist at Caixin Insight Group.
Details showed that most of the sub-indices were lower than in the previous reading. New orders and export orders dropped by 0.4pt and 0.1pt to 51.0 and 50.1 respectively, indicating some downside risk in industrial production and trade data to be released next week. Meanwhile, there was a big jump in the input prices (57.6 in April vs 55.3 in March) as steel futures rallied by more than 40% in recent months on strong speculative flows. As a result, some already-closed steel mills have been fired up again, which will exacerbate the problem of overcapacities.
"In our opinion, all of this suggests that recent China enthusiasm following Q1 data was a bit overdone and the economic improvement in March might be a short-term phenomenon. In fact, the recent sluggish economic data from the US and Asia clearly suggest that there is still a bumpy road ahead of us." notes Commerzbank in a report.
