The Chinese Schrodinger conundrum, in which two different distinct PMI indicators continue to paint opposite pictures of the economy, as explained first here [3], continues. Moments ago, the HSBC Flash PMI posted a decline from 49.3 in April to 48.7. This is the 7th consecutive month in which the economy is in a contraction according to HSBC, and 10th of the last 11. Needless to say, this is only half of the story, and we expect that the official Chinese PMI index will post another increase well into expansionary territory as the random number generator known as China_Economy.xls spews fresh gibberish every time F9 is hit. In the meantime, the spin has already begun, worse is better, and futures are higher simply because the expectation is that another perfectly futile RRR hike (which does virtually nothing for real cash circulating in the economy) will follow suit. Of course, if the number had come in over 50, the spin would be that China's economy has entered into a virtuous loop as goalseeking the narrative to comply with the central planners' market intervention continues.
From HSBC [4]:
[5]
And comparing HSBC with official data (with the divergence growing):
[6]
and for all those coal aficionados looking for the big rip on the back of China's resurgence, some bad news: this Flash PMI print infers zero growth in China's Electricity Production YoY which we crudely assume means zero growth in coal demand...
[7]