Markets have just received the first piece of Chinese economic data for May, and it’s missed expectations.
The preliminary reading of the HSBC-Markit manufacturing PMI gauge increased to 49.1 in May, higher than the 48.9 level of April, but yet again below forecasts for an increase to 49.3.
Any reading below 50 signals contraction in the sector.
While the headline figure improved fractionally, the detail underneath was terrible with every single sub-component contracting during the month.
While new orders, employment, backlogs, prices and stock purchases all declined at a slower pace, factory output fell at the fastest pace since March 2014 while new exports orders, the only real area of strength in April, also contracted.
Commenting on the release Markit economist Annabel Fiddes stated what most people are already thinking – further stimulus is likely.
“The Flash China Manufacturing PMI pointed to a further deterioration in operating conditions in April, with production declining for the first time in 2015 so far," Fiddes said.
"Moreover, softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near-term, as companies tempered production plans in line with weaker demand conditions. On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required.”
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