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Manufacturing output decline offsets Chinese service sector growth

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 4, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - Caixin China Composite PMI data highlighted a stabilisation of Chinese business activity in October. The Caixin Composite Output Index posted a fraction below the neutral 50.0 value at 49.9, up from September’s 80-month low of 48.0.

    Better performance leads to increased hiring in the service sector

    The latest Caixin -Markit China Services PMI moved up significantly to 52.0 in October from 50.5 level of September. Markit noted a rise in total number of businesses as well as the rate of new orders among service sector companies. The rise in new businesses was reflected in the hiring in this sector that jumped to a three month high. Also, October data signalled a reduced amount of unfinished work in this sector.

    However, the overall uncertain economic outlook acted as a dampener resulting in a slide in the sentiment among firms in this sector. The sentiment among firms tanked to the lowest level in ten years of data collection. The slide in sentiment can also be attributed to higher input costs that were sharpest in eight months and reduced selling prices. Service providers cut their selling prices for the second month in a row, albeit only fractionally.

    New business, selling price decline in the manufacturing sector

    October survey data signalled that decline in manufacturing output offset a stronger increase in service sector business activity. New business placed at manufacturing companies continued to decline. The selling price in this sector also dipped in October. The fall in manufacturing staff numbers offset the impact of the increased hiring by services companies. As a result the employee headcounts at the composite level declined in October.

    There is however some good news with respect to the manufacturing sector. Manufacturing work-in-hand increased for the sixth month running leading to the first rise at the composite level since March. Also a sharp fall in input costs at manufacturing firms implied that composite input prices continued to decline.

    Overall pessimism prevails

    The People’s Bank of China conducted a survey of banks, companies and households at the end of the September quarter. The findings of the survey show a fall in the sentiment towards the economy though relative stability in business profits, orders and labour market conditions has been recorded. Consumer sentiment levels declined. As per the latest Westpac-MNI consumer sentiment index for October, confidence slid by 7.2% to 109.7 during the month.

    With the not so encouraging figures in the backdrop, China needs its service sector to perform exceptionally well so that it can offset under performance of the industrial sectors.
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