China's HSBC Manufacturing PMI has now spent 3 years within 2 points of the crucial '50' demarcation between contraction and expansion but as the following chart shows, something seems 'odd' about the last few months apparent stability. Tonight China HSBC PMI printed a stunning 49.7 crushing the expectation of 48.3 (modestly above last month's 48.1) but still in contraction for the 5th month in a row (the longest contraction since Oct 2012). This was China's biggest spike in PMI in 9 months led by increases in new orders, production, and new export orders... but employment fell to new lows. Japan's Markit PMI also printed in 'contraction' territory for the 2nd month in a row - its first since Abenomics began.
One of these things is not like the other (blue is the soft-survey data from HSBC's manufacturing PMI; the histogram is hard-data-based macro surprise index from Citi)
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But HSBC PMI did show contraction for the 5th month in a row and remains notably below the government's official version - which is in expansion...
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The breakdown of sub-indices is mixed...
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But the employment sub index continues to accelerate lower... Welcome to China's jobless recovery
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Japan printed its first 2 months of contraction since Abenomics began...
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This does not bode well for the majority of Japan's economic indicators...
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As the sub-indices were not exactly encouraging
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Markit on Japan...
“The manufacturing sector showed welcome signs of stabilising after the steep downturn seen in April, but producers are clearly still struggling as demand has been hit by the April 1st tax hike. Of additional concern is the fall in export orders, which is a sign of softening demand in key trading partners. GDP growth is consequently likely to have weakened significantly in the second quarter.
“While many companies signalled optimism that the slowdown would be temporary, the cutting of prices and downturn in job creation are signs the sector is preparing for continued tough conditions in the coming months. The extent to which the economy can rebound in the second half of the year remains highly uncertain at this stage."
And on China...
However, the employment index fell further to 47.3, which implies that this month's uptick in sentiment has not yet filtered through to the labour market. Some tentative signs of stabilization are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs. But downside risks to growth remain, particularly as the property market continues to cool. We think more policy easing is needed to put a floor under growth in the coming months.
Charts: Bloomberg and Markit Economics [15]
The reaction was sublime... 1) no reaction to Japan PMI, 2) huge 'early reaction to China PMI, 3) algos gone wild in S&P futures...
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