It always sounds a bit existential in the markets when you argue that “bad” economic news is “good” because it wasn’t worse than expected.
However, in the case of China’s latest manufacturing stats, that not-so-bad performance was enough to light a fire under Chinese stocks which jumped nearly 5% Monday after a swoon last week.
Manufacturing growth edged up slightly in May, but slowing demand for exports and pain in the services sectors gave many the belief that the government will have to create more stimulus to pump up the economy.
The official manufacturing Purchasing Managers’ Index (PMI) edged up to 50.2 in May from April’s 50.1, the National Bureau of Statistics (NBS) said on its website. The number matched analysts’ expectations of 50.2. A reading above 50 points indicates growth on a monthly basis.
The May number was a six-month high, but with export demand shrinking and factories laying off workers many fear that the worst economic downturn in six years will continue.
Most distressing was the non-manufacturing PMI, which fell from 53.4 in April to 53.2, a low not seen since December 2008.
The reports gave analysts the ammunition to say that the government will need to inject more stimulus spending into the market.
“China’s economy still faces strong headwinds,” economists at ANZ Bank said in a note to clients, reported Reuters. “If capital outflow continues at the pace of the first quarter, we expect the People’s Bank of China to cut the reserve requirement ratio by another 100 basis points, in addition to a further interest rate cut of at least 25 basis points.”
Of course, we prefer to see the glass half full.
Pointing out that the rise in factory orders implied steadying in market demand, “this shows stabilization in economic growth,” Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, which helps to compile the government PMI polls, told Reuters.