Both manufacturing and non-manufacturing PMI points to expectations of slower export-related activities, including logistics. Luckily domestic services are still holding up well
This is just the beginning of the downturn
Both manufacturing and non-manufacturing PMI point to concerns about the trade war impact on businesses. This is just the beginning of the trade war. If the 25% tariff on $16 billion worth of goods starts on 1 August then it will only get worse for exporters and related businesses.
We believe that this would push the yuan even weaker. Our USD/CNY forecast is at 7.0 by the end of 2018.
Both manufacturing and non-manufacturing PMI shows trade war starts to bite
Regarding manufacturing PMI, new export orders stayed at 49.8 in July, the same as June but imports fell to below 50 at 49.6 from June's 50.0. Although domestic orders are still holding up steadily at 52.3, it is still lower than last month’s 53.2. The survey indicates that the worry of trade war escalation has fed through export manufacturers to domestic manufacturers via the supply chain.
Non-manufacturing PMI also fell, from 54.0 to 53.0, mainly reflect the fall in demand for production-related services and logistics, which reach 55.8 and 52.8, fallen by 1.9 and 5.7 points respectively. The steep fall in logistic services implies that exports and imports would slow down in the middle of the trade war.
Luckily, domestic consumption related manufacturing PMI rose 0.6 points to 52.4, which indicates domestic consumption is still strong, and have yet to feel the heat of the trade war.
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