China's goal-seeked economy performed admirably in January, and its Manufacturing PMI came absolutely golidlocks at 50.5, an increase from 50.3, previously, just modestly beating Wall Street expectations of a slight contraction of 40.6, yet a less than earlier whisper numbers which put it at 52. As such, thereis absolutely no indication if the PBoC will further tighten or ease in the next month, just as the PBoC likes it, because while many have been demanding easing in the last several weeks, and especially the housing market, the reality is that hot pockets of inflation still remain. Furthermore, the last thing China needs is to proceed with full on easing just as Bernanke goes ahead and launches QE x which will export more hot money, and thus inflation, to China than anywhere else, with the possible exception of gold.
And here are some observations from Bloomberg's Michael McDonough:
- Headline PMI remained above 50 for two consecutive months; another 50-plus reading in Feb. would be very positive sign,
- Underlying data still weak with new export orders falling to 46.9 from 48.6, while new orders rose to 50.4
- Typically if this were true bottom, all forward-looking sub-components would rise above 50 in a month prior or the same month as headline index
- Building domestic pressure coupled with foreign risks should continue to weigh on the Chinese economy, including the PMI going forward, forcing policy makers to cut RRR and eventually policy rates once they are convinced threat of inflation has been squelched
PMI charted:
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