Chinese PMI, Weaker Than Expected . . . But More Than Meets The Hedgeye

Anyone that has been watching either the Chinese stock market or commodity prices for the last six weeks won’t be surprised that we received a couple of data points this morning that confirm economic growth is slowing incrementally in China.  The first, the official China Federation of Logistics and Purchasing managers index fell to 53.9 in May from 55.7 in April. The second, the HSBC China Manufacturing Purchasing Managers Index, fell from 55.2 to April to 52.7 in May – which is the lowest level in a year. 


Despite the sequential decline, both of these indices are still above 50, which denotes expansion in economic activity. We’ve outlined this sequential change from April in the chart below, and would highlight that 54 on the Chinese PMI reading has historically been a bit of an important line, and the next move will be critical to watch.


Interestingly, the most noteworthy change in the Purchasing Managers Index was a change in input prices, which fell dramatically from April’s reading of 72.6 to 58.9 in May.  This implies that underlying unit demand was likely moderately stronger than the headline number suggests, which, perversely, is probably a negative leading indicator for the next PMI data point.  Presumably, the Chinese government will look at the components of the index, and realize that their efforts to slow the economic growth, or potential overheating, are working on the margin, but perhaps not slowing the economy to the extent Chinese officials had hoped.


This interpretation, in conjunction with some of the recent inflationary data points from China that we’ve highlighted below, could lead to more aggressive tightening from China.  These inflationary data points include: 

  • Chinese CPI (Consumer Price Index) and PPI (Producer Price Index) are up 2.8% and 6.8%, respectively, year-over-year. Combined, this is the largest spike in combined inflation in 18 months;
  • Chinese property prices, based on a survey of 70 cities, were up 12.8% year-over-year in April, which is the largest spike since 2005;
  • Chinese money supply growth was up 21.5% year-over-year in April;
  • Chinese loan growth was up 51% sequentially from March to April at 774B Yuan; and
  • Chinese industrial production was up 17.9% on a year-over-year basis in April. 

Obviously, these are primarily April numbers, so May data will also have to be appropriately inflationary to warrant further tightening, but while the headline PMI numbers suggest some economic slowing, the internals are less supportive and suggest still robust expansion in China.


Daryl G. Jones
Managing Director


Chinese PMI, Weaker Than Expected . . . But More Than Meets The Hedgeye - China PMI

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more