The flash estimate for HSBC Manufacturing PMI in August improved markedly to 50.1 (consensus 48.2, Danske Bank 48.2) from a final reading of 47.7 in July. This is the first improvement in HSBC manufacturing PMI since March 2013.
The details were strong with new orders improving markedly to 50.5 in August from 46.6 in July. As finished good inventories were cut at a faster pace, the new order-inventory-balance improved markedly in August, suggesting that the HSBC manufacturing PMI will continue to improve in the coming months. On a negative note, the export order component declined to 46.5 from 47.7, indicating exports remain subdued.
Today’s HSBC manufacturing PMI suggests that Chinese growth has bottomed out after renewed deceleration since early 2013 and that the Chinese economy could be improving a bit faster than expected. This is in line with the recent hard data for July that on balance were also better than expected. We currently expect GDP growth to improve only marginally to 7.0% q/q AR in both Q3 and Q4 from 6.8% q/q AR in Q2 13. There now appears to be upside risk to our forecast but we remain cautious as leading indicators like credit and money supply have shown softness in recent months. However, today’s HSBC PMI should ease fears of a hard landing in China.
Today’s outcome is very positive for the sentiment towards emerging markets in general. Sentiment towards emerging markets has been very negative as they have been caught between fear of a hard landing in China and expectations that liquidity conditions for emerging markets will become more difficult when the Fed starts tapering its QE programme. The market reaction in Asian trade has been relatively muted but the HSBC PMI helped stabilise the markets after a very negative reaction to the Fed minutes released yesterday.
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Danske Bank