China services PMI data forthcoming: What to expect & how it will affect equities and yuan

Over the past six months, the Caixin / S&P Global China General Services PMI has indicated a steady expansion in the services sector, with readings above the 50 mark.

However, there have been fluctuations, with a significant slowdown in September and November, reflecting challenges such as subdued demand and increased competition. Government stimulus measures in October provided a temporary boost, but sustaining growth remains a concern amid global economic uncertainty.

November 2024

• PMI reading: 51.5down from 52.0 in October.
• Main sights: Growth in the services sector slowed, with the expansion of new business slowing, including exports. Despite this, companies continued to hire workers, and business confidence reached a seven-month high. However, competition led to a reduction in retail prices.

October 2024

• PMI reading: 52.0up from 50.3 in September.
• Main sights: This marked the fastest expansion in three months, supported by Beijing's monetary stimulus and property sector support measures that began in September. New business increased slightly, and employment growth continued for the second month in a row. Overall confidence in the sector reached a five-month high.

September 2024

• PMI reading: 50.3down from 51.6 in August.
• Main sights: This was the lowest figure since September 2023, with new orders expanding at the slowest pace in almost a year, despite strong growth in the export business. Employment returned to growth, albeit modestly. Input prices increased, reaching the highest level in nearly two and a half years, while output prices fell due to efforts to support sales. Business confidence weakened to its lowest level since March 2020.

August 2024

• PMI reading: 51.6a slight decrease from 51.8 in July.
• Main sights: The services sector continued to expand, albeit at a slightly slower pace. New business growth remained steady, with a slight increase in export orders. Employment rates were stable, and input cost inflation was moderate.

July 2024

• PMI reading: 51.8up from 51.5 in June.
• Main sights: There was a slight acceleration in services activity growth, with improvements in new business and export orders. Employment saw a slight increase, and input costs continued to rise, albeit at a manageable level.

June 2024

• PMI reading: 51.5down from 52.1 in May.
• Main sights: The services sector experienced a slight slowdown in growth, with new business expansion becoming easier. Employment remained stable, while input cost inflation showed signs of softening.

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How is it likely to affect the release and in the following trade?

In general, a PMI reading above 50 and rising:

• An improving services PMI suggests strong economic activity, which could boost investor confidence and should, at the margin, follow stock market gains, particularly in sectors such as retail, hospitality and finance. .
• A strong PMI should also, at the margin, attract foreign investment and thus increase demand for yuan, leading to currency appreciation.

Conversely, a PMI reading below 50 / declining

• likely to raise concerns about a slowdown in the economy, possibly leading to a decline in the stock market, particularly in service-oriented sectors.
• that could discourage foreign investment, reducing demand for the yuan causing a devaluation.

As always, the degree of market reaction depends on how the PMI figures themselves compare to market expectations:

• Better than expected, again at the margin, should lead to rallies in stock markets and RMB value
• Worse-than-expected data should lead to a stock market decline and RMB depreciation.

As one side, evaluating the response of the market compared to what ought to occur if it is generally a reasonable guide to market conditions and can present relevant trading opportunities.

Additional considerations, which should not be dismissed:

• Recent stimulus measures or regulatory changes may increase or decrease the impact of PMI data.
• Global Economic Conditions: External factors, such as global demand and trade relations, also influence market reactions.

And, as always, and again these horrors should not be dragged off:

• Traders should consider PMI figures along with other economic indicators and market conditions for a comprehensive analysis.
• Financial markets are influenced by a number of factors; past performance does not guarantee future results.