|
Risk Indicators - Caixin Manufacturing PMI
While news of the trade-talk detente between the United States and China pushed stocks higher before the opening bell, economic news out of China ended up robbing traders of their bullish momentum.
IHS Markit, a global information and analytics aggregator, disappointed Wall Street today when it released the Caixin China General Manufacturing Purchasing Managers’ Index (PMI). I know that’s a huge mouthful, but it is worth the effort to digest everything this report has to say.
The Caixin Manufacturing PMI is an indicator that combines survey results from purchasing managers in the following five areas: new orders, output, employment, suppliers’ delivery times and stock of items purchased. Caixin Media (think of it as China’s Bloomberg) surveys purchasing managers regarding this information because they are on the front lines of the manufacturing sector and can give us a glimpse into what might be happening in the Chinese economy in the future.
Unfortunately, the results of the surveys were worse than expected. Analysts were anticipating the index to come in at 50.1 for June. Instead, it came in at 49.4.
This is concerning because the Caixin Manufacturing PMI is a diffusion index, which means the indicator is based on a scale of 0 to 100, with 50 being the balanced midpoint.
Any number above 50 on the scale indicates expansion in the manufacturing sector of the Chinese economy. The farther above 50 the index goes, the stronger the expansion.
Conversely, any number below 50 indicates contraction in the manufacturing sector of the Chinese economy. The farther below 50 the index goes, the stronger the Contraction.
The reported number of 49.4 was not only lower than analysts had expected – causing a negative surprise – but also indicates the Chinese manufacturing sector is contracting once again.
This is bad news for those traders who are looking for a strong global economy to continue pushing stock prices higher.
|
