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After showing a series of upbeat PMI figures last month, it seems that today’s data is running short of expectations. China bears have therefore well-founded reasons to dump both Chinese yuan and Australian dollar in today’s trading session as major trading partners should face the direct consequence of the drawdown. Yet perspectives have not fundamentally changed, as the readings still remain in expansion territory while the recent announcement made by Chinese authorities to moderate expansionary stimulus policies in order to curb debt risk necessarily induces further volatility along 2Q 2019.
Official Manufacturing PMI dropped to 50.1 from 50.5 in March while the Caixin gauge was at 50.2 whereas the recent readings are pointing to a slowdown in construction growth. Market reaction was overall negative as most Asian shares fell, including Japanese Topix 500 and Nikkei 225 down 0.22% and 0.11% followed by Hong Kong Hang Seng -0.65% while China mainland CSI 300 progressed by 0.33% as trade negotiations from the US and China are expected to come to an end within the next two rounds of talks. Focus is turning towards final issues relating to trade duties introduced last year by both sides. It is expected that a process of gradual elimination of tariffs will be synchronized with the timetable established under the enforcement mechanism.
Currently trading at 6.7339, USD/CNY is expected to firm slightly.
By Vincent Mivelaz
