A quick take on China PMI numbers on Sat, and Caixin PMI out in a few hour, US ISI tomorrow:
1. The February China official PMI came much below the consensus forecasts. A level of 50 means neutrality. Below 50 means contraction. Both manufacturing and non-manufacturing data pointed to severe contraction, breaking the record low, worse than the levels during 2008 global financial crisis. The non-manufacturing hit below 30, a rare level never seen before. Given that China’s economy is driven more by service, account for 54% of the economy, it’s critical to watch how this series shape out in the future. How quickly restaurants, theaters, schools will be re-open and the lifting of restrictions on movements at local community level, are all good indications for that.
2. A critical release to watch is the Caixin PMI indices, coming out tonight. Caixin indices focus on mid and small firms, where were hit particularly hard and have been slower in getting back to normal and are facing more financial burdens than the large firms. That’s the case especially with service sector. I would not be surprised if both confirmed the contraction, if not worse than official PMI..
3. The US ISI PMI manufacturing numbers will be out tomorrow on 3/2. The current survey may be too optimistic in my view. I would not be surprised if the manufacturing level dip to contraction level at low 40s for the US market. However, I think that the US non-manufacturing should come out much better than the manufacturing ISI later in the week.
4. Wall Streets are still in the process of catching up with their revisions on economic data and company earnings forecasts. They have adjusted quicker on some sectors, while still fleshing out other less obvious ones. The revelation of China’s official and Caixin data may further surprise the street, which might continue the market turbulence next week.
5. Yet, it is also a great time to evaluate if your long-term investment thesis is still intact beyond the crisis, and constantly checking the new valuation of those sectors and securities reflecting your long-term thesis. It’s possible that we might be getting closer to an opportunity to invest in those names at a deeper discount.
Feb China Manufacturing PMI
Worse than 2008. Caixin PMI Manufacturing for mid-sized and small firms likely confirm contraction.
Feb China non-Manufacturing PMI
Worse contraction ever. Caixin PMI Service likely to confirm contraction, and worse than its manufacturing counterparts.