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US Data Resilient | China PMI Firmer

Updated: Oct 12, 2023

Contributed by Jeff Cheah, Strategic Sales Manager

US Economy Stays Resilient | skip to SGD/CNY

In a surprising turn of events, U.S. nonfarm payrolls experienced an unexpected surge in September, marking the largest increase since the beginning of the year. This surge underscores the resilience of the labor market and provides support for the Federal Reserve's potential decision to raise interest rates once again.

According to a report from the U.S. Bureau of Labor Statistics, non-farm payrolls saw a significant increase of 336,000 in September, following significant upward revisions to the data for the previous two months. Despite this increase, the unemployment rate held steady at 3.8%, and wage growth remained moderate. The prices in the swap market now indicate a higher likelihood of the Federal Reserve raising interest rates this year.

Meanwhile, Michael Barr, the Fed's vice chairman for supervision, indicated that the U.S. central bank may be nearing interest rate levels that are sufficiently restrictive. This sentiment aligns with Chairman Jerome Powell's earlier statements, suggesting a cautious approach to further rate hikes. The real question now is how long the Fed will maintain these restrictive interest rates.

Speaking at a Forecasters Club event in New York, Barr emphasized the importance of assessing the path of interest rates going forward. He hinted at a potentially dovish stance, suggesting that the Fed might remain on hold for the remainder of the year to achieve its inflation target of 2%. Barr also noted that the full impact of the central bank's previous rate hikes will become more apparent in the coming months.

In contrast, Cleveland Fed President Loretta Mester expressed her support for another interest rate increase at the next meeting in November, provided the economy performs similarly to how it did in September. Mester, while not having a vote on monetary policy this year, believes that one more rate hike might be necessary, followed by an extended period of higher interest rates to bring inflation back to the desired 2% target. However, the final decision will depend on various economic factors, including the potential impact of events such as an extended auto union strike and a federal government shutdown.

At this juncture, we can see the USD continues to receive support from hawkish Fed officials' rhetoric, increasing risk aversion, the robust growth of the U.S. economy, and the narrative of higher interest rates for a more extended period.

China’s PMI Frmer than Expected

Data released by the National Bureau of Statistics on September 30 showed that in September, the manufacturing purchasing managers index (PMI) was 50.2%, an increase of 0.5 percentage points from the previous month, returning to the expansion range. [1] In the same month, the non-manufacturing business activity index was 51.7%, an increase of 0.7 percentage points from the previous month, indicating that the expansion of non-manufacturing industries has increased.

The production index and new orders index in September were 52.7% and 50.5% respectively, up 0.7 and 0.3 percentage points from August. From an industry perspective, the production index and new order index of industries such as petroleum, coal and other fuel processing, automobiles, and electrical machinery and equipment are all higher than 53.0%.

Export orders and orders on hand continue to shrink, as demand from European and American economies continues to shrink. The indexes of new export orders and orders on hand in September were 47.8% and 45.3%, a change of 1.1 and -0.6 percentage points from August. In September, the US Markit manufacturing PMI was 58.9%, the eurozone manufacturing PMI was 43.4%, and the German manufacturing PMI was 39.8%, which has been in the contraction range for fifteen consecutive months.

China's industrial inventory cycle has entered the end of destocking, with both volume and price rising. At the end of destocking, nominal inventories have rebounded, and purchase volumes and prices have continued to improve. In April 2022, industrial enterprises began to actively destock, and the inventory of finished goods dropped from 20.0% to 1.6% in July 2023. In August, it rebounded slightly to 2.4%, which has entered a historically low range. Raw material inventory, purchase volume, and supplier delivery time were 48.5%, 50.7%, and 50.8% respectively, a change of 0.1, 0.2, and -0.8 percentage points from the previous month.

Real estate policies have been intensively implemented, and sales have improved slightly m/m, but are still weak. The key to the follow-up is to mitigate risks and boost confidence. On the first 29 days of September, the number and area of commercial housing transactions in 30 large and medium-sized cities were -21.3% and -21.1% respectively y/y, up 3.8 and 1.7 percentage points respectively from the previous month. Month-on-month, they were 16.2% and 16.0% respectively, with first-tier cities exceeding m/m. The real estate operating conditions and orders PMI index in September were 42.7% and 39.1% respectively, a change of 0.3 and -0.7 percentage points from the previous month.

The issuance of new special bonds accelerated in September, and infrastructure construction picked up. The business activity index of the construction industry in September was 56.2%, an increase of 2.4 percentage points from the previous month; among them, the business activity index of the civil engineering construction industry remained above 58% for 2 consecutive months. The progress of new special bond issuance from January to September was 92.0%, and the overall progress accelerated by 9.5% from the previous month. In addition, Inner Mongolia plans to issue RMB 66.32 billion of special refinancing bonds on October 9, kicking off debt refinancing in 2023. It is expected that more cities will start debt refinancing, effectively reducing debt risks.

Overseas economies continue to decline, and global trade remains relatively weak. China’s new export orders index in September was 47.8%, an increase of 1.1 percentage points from the previous month. In September, the manufacturing PMIs of the United States, the Eurozone, and Germany were 48.9%, 43.4%, and 39.8% respectively. South Korea's exports in the first 20 days rose sharply to 9.8% y/y. There is a certain low base effect. We need to continue to pay attention to the recovery trend of overseas manufacturing.

We note that real estate and exports continue to be a drag, and total demand is still insufficient. The economic recovery momentum is not yet

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