We are not worried about today’s weaker than anticipated China October 2011 PMI. We expect a rebound in November to around 51-52 as an initial estimate. Our leading indicator for growth is pointing towards an acceleration and worse case scenario of stability.
The drop in the October PMI to 50.4 (versus our estimate of 52 and BBG consensus 51.8) from September print of 51.2 doesn’t match the improvements we are observing in US data, Korea data, rebound in global commodity prices, and acceleration in China’s import and export volumes of major industrial materials and durable goods.
As a result, we are fading this downside surprise in China October PMI. Our Q4 11 GDP growth forecast is 9.2-9.5% y/y versus Q3 11 9.1%.
Most sub-components of the China October PMI are down, which normally doesn’t happen, i.e. it’s usually a more mixed bag unless global growth is falling rapidly.
What is surprising is that the new orders and inputs prices sub-components of the China October PMI have fallen in October.
The fall in the new orders components doesn’t match the recovery we are seeing in US actual output data and the most recent improvements in data on global auto and steel production.
In addition, the fall in October input prices doesn’t match the rebound in global commodity prices we have been observing since September and robust PPI data in other major economies in the industrialized economies.
As a result, we expect November China PMI to accelerate due to a rise in the new orders and input prices sub-components. The recent adjustments in fiscal and monetary measures to help SMEs will also be supportive of our positive outlook on China PMI.
The downside risks to our positive views on China economic activity are that risks related to peripheral Europe and US debt dynamics become unmanageable and escalate, global growth slows considerably, and global financial markets weaken on a sustained basis.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/11/AsiaFlashchinaoctober2011PMI.pdf
Skandinaviska Enskilda Banken AB