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China’s manufacturing PMI falls slightly in January, PBoC likely to hike money market interest rate in 2018

China’s headline manufacturing PMI dropped slightly in January by 0.3. The manufacturing PMI index dropped to 51.6, remaining at the same level as in November 2017. The overall momentum appears to have held up. But new export orders dropped in January to 49.5, showing a possible contraction in the near term. To measure the regional export outlook, other anecdotal information needs to be monitored closely. Moreover, the possible effect of the recent strengthening of Chinese yuan against the USD on China’s exports needs to be looked at.

Pollution control measures of China do not appear to have impacted the steel industry considerably, as its output index surged 5.8 points in January. However, the industry’s rate of growth has decelerated as its PMI of 50.9 in January was lower than last November’s 53.1.

“We believe the National Bureau of Statistics will use the newly launched composite PMI to gauge the growth momentum of the entire economy”, noted ANZ in a research report.

As GDP weights are used to combine the manufacturing and non-manufacturing indices, the PMI reading released today suggests a high share of the non-manufacturing industry in the economy. A stable print of 54.6 in January implies that the economy continues to be expansionary. The government is expected to maintain a GDP target of around 6.5 percent this year, stated ANZ.

“We maintain our forecast that the People’s Bank of China (PBoC) will hike the money market interest rate by 35bps in 2018”, added ANZ.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was highly bearish -106.486, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -61.263. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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