Chinese PMI preview – not as bad as feared?

China’s official purchasing managers index (PMI) is released 2am GMT / 9pm EST tonight.

The manufacturing PMI fell from a 2012 peak of 53.3 in April to 50.1 in July (a number above 50 indicating expansion).

HSBC/Markit’s alternative Flash PMI, released earlier this month showed activity falling to a 9-month low. However, given the wide divergence between the offical PMI and the HSBC/Markit PMI (at least on a month by month basis) care should be taken in reading too much into the slump.

China PMI official vs HSBC

The official PMI is likely to give an indication of whether China’s government are about to release a new stimulus package. If the result is particularly bad commodity prices are likely to pickup next week on anticipation of a recovery in demand for commodities.

A Bloomberg poll of economists expect the manufacturing PMI to ease slightly to 50 – in effect zero growth.

However what is interesting is the remarkable seasonality in Chinese manufacturing activity. In 6 of the past 7 years (as far as the data goes back) activity has increased between July and August. The exception was 2008 when it was unchanged.

Given this pattern (and admittedly ignoring every other bit of anecdotal evidence I’ve read) I’m going to say that the official Chinese PMI will show an increase in August.

China manufacturing PMI seasonal

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Euro-zone input price inflation at 9-month high squeezing margins

Euro-zone purchasing manager data (Markit) for March showed overall input prices accelerated to a nine month high with raw material prices (largely due to oil) up in both the service and manufacturing sectors. Although input prices rose at their fastest level since June 2011, Markit report that the overall inflation level was close to the 14 year survey average. With output prices remaining subdued businesses across the EZ manufacturers especially are facing a greater squeeze on their margins.

eurozone input prices

Unfortunately for euro-zone manufacturers this is unlikely to be the end of rising input prices. The Economists Euro Index of commodity prices is up a further 2.2% in the past month alone.

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Commodity Risk Economic Calendar – 5th-9th March

(All times GMT):

Tuesday 6th March

03:30 – Australian interest rate decision: Interest rates are expected to remain unchanged at 4.25%.

Wednesday 7th March

00:30 – US ADP Nonfarm Employment Change: Employment forecast to rise by 205k in the latest report, up from 170k in the previous month. Latest report available here.

15:30 – EIA Crude Oil Market Report: The EIA (Energy Information Administration) will publish its weekly report on the U.S oil and petroleum market for the week ending on March 2nd.

Thursday 8th March

13:30 – US initial jobless claims: Jobless claims are forecast at 350k in the past week, down from 351k the previous week.

Friday 9th March

01:30 – Chinese inflation: CPI is forecast to drop from 4.5% in January to 3.6% in February. Last month inflation was 0.5% above the markets expectation so this months reading will be closely watched for signs of room for manoeuvre for fiscal and monetary policy. The report can be found here. Inflation higher than expected is likely to be bearish for commodities, cotton in particular.

chinese cpi chart

TBC – OPEC Monthly Report

TBC – USDA Agricultural Supply and Demand Estimates. Closely watched by the cotton market for indications of the impact of drought on plantings in Texas.

13:30 – US non farm payrolls: Forecast to drop from 243k last week to 210k this week. Latest report can be found here.

13:30 – US unemployment rate: Forecast to be unchanged at 8.3%.

20:30 Commitment of Traders report: Data from CFTC provides a breakdown of the previous Tuesday’s open interest and net direction of bets. Latest report will be available here. and crude and cotton charts here.

For more detailed information please see the Economic Calendar and for daily commentary on events in crude and cotton futures markets visit our Market Commentary section.

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