The fall in global iron ore prices will rattle the local market today, but two bits of news from China (the major buyer of that iron ore) will go some way to easing those fears.
The weakening iron ore price is covered in a separate story, but from China came news at the weekend of an easing in the reserve requirements for some banks (not identified) to boost lending, and then yesterday when the first of two surveys of Chinese manufacturing surprised with the highest reading so far in 2014.
The news will also help support the Aussie dollar today in Asian trading.
The official Purchasing Managers Index rose to 50.8 (which is just in expansion territory), from April’s 50.4 reading.
It was seen as a sign previously low key and small bursts of stimulation from the government in the past couple of months (such as bringing forward spending) is having an impact at last.
The survey comes from a total of 3,000 companies, mostly large enterprises.
Most subindexes in the official PMI rose in May.
Output increased to a four-month high and new orders was at the highest since November.
The employment gauge eased to 48.2 from 48.3, continuing to signal contraction. That has also been a feature of the HSBC/Markit survey.
The sharp rise also matches one see in the second monthly survey – the HSBC Markit PMI – whose early monthly report last week showed a jump to 49.7. The final reading is due on on Wednesday.
The small cut in reserve requirements was reported on Saturday after a decision late Friday by China’s State Council.
The State Council said the reserve-requirement ratio will be cut for those lenders that have extended a certain amount of loans to rural borrowers and smaller companies.
The People’s Bank of China will set up a re-lending facility for smaller companies and has set this year’s quota at 50 billion ($US8 billion), according to state media reports.
This move follows other measures from the government in May.
They included the country’s Finance Ministry calling for the faster spending of budgeted funds.
The country’s central bank cut reserve requirements for some rural banks in April and this month called on the biggest lenders to accelerate the granting of home mortgages.
The ratio for large financial institutions is 20% and 16.5% for smaller ones.
The State Council has also outlined steps including faster railway spending and tax breaks to help ensure the government meets its goal of about 7.5% growth. (Most forecasts now range from 7% to 7.3% for the year).
The biggest worry remains the health of the country’s huge and volatile property industry, from sales through construction with continuing reports of falling prices, sales and rising debts.
The State Council also said in Friday’s statement that the nation will reduce social financing costs and keep reasonable growth in credit and social financing as it faces “relatively large” downward economic pressure.
The statement from the council also said it will intensify targeted financial easing in coming months. But it also maintained the country’s "prudent" monetary policy, which is code for no huge bursts of spending to stimulate the economy.
