China PMIs for October: surprised on the upside but …

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China’s CFLP manufacturing and non-manufacturing PMIs for October came in better than I had expected. Although October tends to be a somewhat weaker month from a seasonal perspective, the manufacturing PMI rose to 54.7 from 53.8.

Sources: Li & Fung; Plexus Asset Management.

The non-manufacturing PMI followed a trend similar to that of 2008 and registered 60.5 compared to 61.7 in September.

Sources: Li & Fung; CFLP; Plexus Asset Management.

The GDP-weighted PMI (manufacturing and non-manufacturing) is following a pattern similar to that of last year.

Sources: Li & Fung; CFLP; Plexus Asset Management.

The closely-watched ratio of new orders to stocks of finished goods remains at an elevated level after rebounding from the critical 1.0 in July this year.

Sources: Li & Fung; CFLP; Plexus Asset Management.

The outlook for the next few months is not that rosy, though. The PMIs for November could surprise on the downside as the patterns over the past two years indicate significant weakness in the non-manufacturing sector and the composite GDP-weighted PMI for that month.

Bulk shipping rates have already started to ease. Despite a significant weakening of the US dollar the Baltic Dry Index has lost 8% since its highs in October.

Sources: I-Net Bridge; CFLP; Plexus Asset Management.

After surging by 63% on the back of coal and grain freight rates the Chinese Coastal Bulk Freight Index (CBFI) has also started to ease, losing 5.6% over the past week.

Source: chineseshipping.com.

The turnaround of the CBFI Index since June has been consistent with the turnaround of China’s manufacturing PMI.

Sources: Li & Fung; CFLP; chineseshipping.com; Plexus Asset Management

The Shanghai Containerised Freight Index has continued its downward trend since July this year. Where the rates on the North American West Coast route held up reasonably well compared to the Europe Coast route, the rates of the former route have decelerated faster than those of both the Europe route and the composite index. While the decline can be attributed to excess capacity in the container shipping industry, lower cargo volumes are also playing a role. Industry analysts forecast cargo volumes to be down by 7% in the fourth quarter compared to the third quarter.

Sources: chineseshipping.com; Plexus Asset Management.

I will follow bulk freight indices such as the Baltic Dry Index and CBFI over the next few weeks to ascertain the underlying trend of China’s economy, but my call is for a weakening economy in the coming two months.

Sources: Li & Fung; CFLP; Plexus Asset Management; I-Net Bridge.

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