Commerzbank’s Charlie Lay and Dr. Henry Hao report that China’s private manufacturing PMI eased slightly to 51.7 but still delivered the strongest quarter in nearly six years, with official PMIs also beating expectations. They warn that rising external trade frictions from the European Union and Japan pose downside risks to exports in H2. USD/CNY and USD/CNH both rose, despite a stronger PBoC fixing.

China PMIs and Yuan performance

"The private sector manufacturing PMI for June printed at 51.7, a three-month low that slightly exceeded our estimate of 51.5 but slipped marginally from 51.8 previously. This sealed the strongest quarter for the sector in nearly six years."

"The official NBS manufacturing PMI reinforced this positive outlook by beating expectations at 50.3 against a consensus of 50.1. Furthermore, the non-manufacturing PMI surprised to the upside at 50.2."

"These figures confirm that the export-driven industrial sector is sustaining its momentum despite structural vulnerabilities in the broader economy."

"The accumulation of external trade friction is introducing new downside risks to the export growth trajectory for H2. The European Union recently introduced measures targeting Chinese steel imports and small-parcel e-commerce shipments."

"In FX, USD/CNY rose 70 pips to 6.79 and the offshore USD/CNH rose 80 pips to 6.80 yesterday. This depreciation in the yuan was driven by broad dollar strength following Fed Chair Kevin Warsh's remarks at the ECB forum."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)