The Ox is waking up…
As Keith Noted in our Early Look note, China released seasonally adjusted PMI for January of 45.3 versus 41.2 reported in December and, importantly, significantly above the November low of 38.8. Although any number under 50 represents a contraction, the positive delta here is significant -particularly when taken in context with modestly rising indicator levels in recent weeks like base metal prices and shipping rates.
Positive industrial data points are signaling that the Ox is waking up. Unemployment however, particularly job losses by rural migrants who labored in consumer goods manufacturing spaces that will likely never return to previous output levels, is a lagging factor that will likely continue to rise in coming months. The rising jobless numbers will keep public pressure on Beijing as the second wave of the stimulus program works through the system. The major infrastructure projects which are slated to commence in Q2 should relive some of that pressure, but the topic will be a continuing source of negative headlines until then. We are expecting this bad news and have factored it into our thesis.
We remain bullish on the Chinese Ox and will be following all data points both from within China and from its major trading partners as we continually test our convictions.