Data out of China on Monday showed that both manufacturing and service sectors’ activity slowed down unexpectedly in July, but remained above the expansionary threshold. However, the aussie did not show any significant reaction to Chinese data as Australian private housing credit in June surprised analysts to the upside while new home sales for the same month plummeted.
The China Logistic Information Centre released on Monday its estimates on Chinese manufacturing and non-manufacturing Purchasing Managers indexes (PMI) for the month of July. According to the numbers, Chinese manufacturing PMI slipped by 0.3 points in July to 51.4, missing the forecast of 51.6. The index retreated mainly due to companies’ routine maintenance and to adverse weather conditions which caused flooding in some parts of the country. However, the index retreat was not a source of concern for analysts, as the index remained above the threshold of 50, which separates expansion from contraction on a monthly basis.
Growth in the Chinese service sector calmed as well, with the service PMI edging down to 54.5 from 54.9 in June. Despite the potential negative impact of higher financing costs, rising wages, which encourage consumers to spend more on leisure and shopping, supported the index. The index remained above 50 and was higher than the average of the first half of the year. Note that the Chinese economy relies on domestic consumption to mitigate risks in exports and investments, which are the main growth drivers.
Meanwhile, in Australia, the main trading partner of China, new home sales in June based on estimates from the Housing Industry Association Economics Group (HIA) turned negative, dropping by the fastest rate since August 2016. New home sales sank by 6.9% month-on- month after a rise of 1.1% in May. Other data out of the country released on Monday regarded new credit issued to the private sector, which includes both consumers and businesses. New private sector credit was up by 0.6%, exceeding the forecast of 0.4%, which was also May’s reading, and posting the highest increase since the beginning of the year.
Turning to the forex markets, the aussie stood flat against the dollar around $0.7975, digesting the slight fall in Chinese PMI’s and the mixed Australian data.
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