China’s services PMI data due: What to expect & how its likely to impact equities and yuan

The Caixin/S&P Global China General Services PMI is scheduled for release today, January 6, 2025, at 01:45 UTC, which is January 5 2045 US Eastern time:

Over the past six months, the Caixin/S&P Global China General Services PMI has indicated consistent expansion in the services sector, with readings above the 50-mark.

However, there have been fluctuations, with notable slowdowns in September and November, reflecting challenges such as subdued demand and increased competition. Government stimulus measures in October provided a temporary boost, but sustaining growth remains a concern amid global economic uncertainties.

November 2024

• PMI Reading: 51.5, down from 52.0 in October.
• Key Insights: The services sector experienced a slowdown in growth, with easing new business expansion, including exports. Despite this, companies continued to hire staff, and business confidence reached a seven-month high. However, competition led to reduced selling prices.

October 2024

• PMI Reading: 52.0, an increase from 50.3 in September.
• Key Insights: This marked the fastest expansion in three months, supported by Beijing’s monetary stimulus and property sector support measures initiated in September. New business increased marginally, and employment growth continued for the second consecutive month. Overall confidence in the sector reached a five-month high.

September 2024

• PMI Reading: 50.3, down from 51.6 in August.
• Key Insights: This was the lowest figure since September 2023, with new orders expanding at the softest pace in nearly a year, despite solid growth in export business. Employment returned to growth, albeit marginally. Input prices increased, reaching the highest in almost two and a half years, while output prices fell due to attempts to support sales. Business confidence weakened to the lowest since March 2020.

August 2024

• PMI Reading: 51.6, a slight decrease from 51.8 in July.
• Key Insights: The services sector continued to expand, albeit at a marginally slower pace. New business growth remained steady, with a modest increase in export orders. Employment levels were stable, and input cost inflation was moderate.

July 2024

• PMI Reading: 51.8, up from 51.5 in June.
• Key Insights: There was a slight acceleration in services activity growth, with improvements in new business and export orders. Employment saw a modest uptick, and input costs continued to rise, though at a manageable rate.

June 2024

• PMI Reading: 51.5, a decrease from 52.1 in May.
• Key Insights: The services sector experienced a modest slowdown in growth, with new business expansion easing. Employment remained stable, and input cost inflation showed signs of softening.

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How is it likely to impact upon release and in trade following?

In general, a PMI reading above 50 and rising:

• An improving services PMI suggests robust economic activity, potentially boosting investor confidence and should lead to, at the margin, stock market gains, particularly in sectors like retail, hospitality, and finance.
• A strong PMI should also, at the margin, attract foreign investment and therefore increase demand for yuan, leading to currency appreciation.

On the other hand, a PMI Reading below 50 /declining

• is likely to raise concerns about economic slowdown, possibly resulting in stock market declines, especially in service-oriented sectors.
• might deter foreign investment, reducing demand for yuan causing depreciation.

As always, the degree of market reaction depends on how the actual PMI figures compare to market expectations:

• Better-than-Expected should, again at the margin, lead to rallies in stock markets and RMB appreciation
• Worse-than-Expected Data should result in stock market declines and RMB depreciation.

As an aside, assessing the market response compared to what should happen if usually a decent guide to market positioning and can present decent trading opportunities.

Additional Considerations, and these should not be shrugged off:

• Recent stimulus measures or regulatory changes can amplify or mitigate the impact of PMI data.
• Global Economic Conditions: External factors, such as global demand and trade relations, also influence market reactions.

And, as always, and again these caveats should not be shrugged off:

• Traders should consider PMI figures alongside other economic indicators and market conditions for a comprehensive analysis.
• Financial markets are influenced by multiple factors; past performance does not guarantee future results.

This article was written by Eamonn Sheridan at www.forexlive.com.