More weak figures on the health of China’s huge manufacturing sector in February – the release came less than a day after the country’s central bank revealed a surprise easing in the reserve asset ratio for banks which saw more than $US100 billion made available for lending from yesterday.
That was seen as a positive bit of news and helped markets steady on Monday night and for a while in Asia.
The Shanghai market rose more than 1.6% yesterday.
But the weak results of the two start of month surveys of manufacturing and a weak report on the health of the country’s services sector, continued the bad news for investors about the health of the economy.
But it has to be pointed out that the week long Lunar New Year holiday (and longer if you include travel time) happened in the middle of February and impacted data and economic activity in a way that any seasonal adjustment process can’t adjust for.
China’s National Bureau of Statistics, which released the official survey, said this was partly due to seasonal effects of holiday, when many factories shut for extended periods to allow workers to travel to distant hometowns to spend time with their families.
But the surveys produced results not seen since the GFC as Chinese manufacturing continued to weaken in a deflationary rut.
Reuters pointed out that these surveys from China to Indonesia “showed no signs of reversing a weakening trend, forcing factories in the trade-reliant region to shed yet more jobs and cut prices, a move that could worsen a global disinflationary trend.”
At the same time South Korea reported weak trade figures (for February) for the 14 month in a row with exports and imports both weak.
Japanese retail sales and consumer spending fell in January (after inflation fell into deflation in January), but industrial production perked up with a 3.7% rise.
At the same time the Japanese government sold $US20 billion of 10 year bonds at a negative yield – the buyers will pay the government and average of minus 0.024%. Demand was strong with buyers for 3.2 times the amount sold lodging bids.
Apart from the bond sale, it was more a case of ‘more of the same’ from some of the regions major economies – overall weakness and sluggish demand.
The Chinese government’s official survey of manufacturing reported a reading for February which was worse than expected at 49. This is seen as a big deal because this survey, which looks at bigger companies, has been producing stronger results that the Caixin/Markit survey.
The reading means the manufacturing sector has been shrinking for the past seven months. It is the lowest reading since November 2011, when it was also 49.
The services PMI was 52.7, compared to a previous reading of 53.5 – still very solid, but starting to slow. The Caixin/Markit survey came in at 48, below expectations for 48.4. It had been 48.4 in January. The 50-mark separates contraction from expansion. The reading means the manufacturing sector has been shrinking for a whole year now, and February was its lowest in five months.
It’s no wonder the sector has been enduring price deflation now for almost four years. He Fan, an economist at Caixin Insight, said in a statement:
"The index readings for all key categories including output, new orders and employment signalled that conditions worsened, in line with signs that the economy’s road to stability remains bumpy. The government needs to press ahead with reforms, while adopting moderate stimulus policies and strengthening support of the economy in other ways to prevent it from falling off a cliff."
