HSBC’s China flash PMI for October resumed growth jumping from 49.9 to 51.1. Just about every component made a turn for the better:
This is something of a surprise, though perhaps it should not have been. The turnaround is being led by export orders, probably to the US where the August debt-ceiling shock has clearly passed rapidly. Rather than completely derailing the Christmas buy, it seems to have delayed it somewhat.
This is some real fuel for the rally to run on, which is clearly the way the ASX has interpreted it this afternoon. It still doesn’t alter my view on the next year, with big risks to growth remaining from European and US austerity but this development does set up a short term positive feed back loop for global growth that offers the hope that the private sector can provide enough demand to offset austerity (at least in the US). As US consumers come out of their policy shock stall and retailers there find themselves short of inventory, more orders can be expected for China and it, in turn, can consume more of US exports. A positive loop.
That’s the first time I’ve been able to say that in many months. I wouldn’t stand in the way of this rally now (with the caveat that Europe must deliver a package sufficient to mitigate its risks for a few months at least).
That does not resolve the other risk building in China, it’s still deflating fixed asset bubble but it does mean that for the time being, there is no convergence of that deflation with a US led accident in Chinese exports. Hope for a Chinese soft-landing will rise correspondingly.