China April Manufacturing Weakens Further in Final HSBC PMI
The final Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 48.9, missing the median estimate of 49.4 in a Bloomberg News survey and lower than the preliminary reading of 49.2. Numbers below 50 indicate contraction.
With economic expansion threatening to dip below the leadership’s 2015 target of about 7 percent -- one state-affiliated group reportedly sees a 6.8 percent pace this quarter -- officials have already loosened monetary policy. Anticipation of more measures to come has helped stoke a rally in stocks the past two months.
The Shanghai Composite Index of stocks initially dropped after the PMI report, before recovering to be 0.9 percent higher as of 11:33 a.m.
The deterioration in the report contrasted with the official manufacturing PMI for April that suggested a stabilization.
Monetary PolicyPolicy makers cut interest rates and reduced banks’ reserve requirement ratios twice in the past six months to prevent a deeper slowdown. China’s Communist Party leaders vowed in a meeting Thursday to step up targeted measured to counter downward pressure.
“The economy is still not bottoming out,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “It’s pretty clear that policy makers will ramp up stimulus measures so it’s very, very likely that we will have another interest rate cut in May.”
The People’s Bank of China has also considered using a toolkit that includes unconventional policies such as a Pledged Supplementary Lending program that channels money to favored areas of the economy. The PBOC may inject liquidity via policy banks such as China Development Bank, Caixin magazine reported on Monday, citing an unidentified person.
“Early signs for April point to growing downside risks for the government’s 7 percent GDP growth target for 2015,” Bloomberg economists Fielding Chen and Tom Orlik wrote in a note. “The case for a further cut in interest rates, perhaps as early as May, continues to strengthen.”