According to analysts from Danske Bank the big decline in Caixin PMI manufacturing for May confirms that the downside risks to Chinese growth are increasing.
China's May Caixin PMI dips into contraction, a big miss on expectations
Key Quotes:
“Chinese leading indicators have pointed to a peak in the cycle since the beginning of the year:
• The PMI data for May confirm our view of downside risks to the Chinese economy this year.
• Why slow down? Two main engines of recovery are turning lower. 1. Slowing housing market. 2. Fading boost from infrastructure.
“Recently, financial stress has pushed bond yields higher adding to the cumulative policy tightening, which is why we now see downside risks. There are also signs that the Chinese export engine is losing some steam – a sign the global manufacturing cycle is turning lower.”
“China is moving from a reflationary force in 2016 to a deflationary force in 2017.”
“Financial implications of slowdown: While global equity markets – including emerging markets – are still strong, the decline in China points to increasing risks of correction. Fears of a hard landing may resurface in H2. Bullish for fixed income, as global cycle peaks and deflationary impact rises. Bearish for commodities as already seen in markets.”
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