The Caixin manufacturing PMI for China rose somewhat unexpectedly this morning to 50.4 from 49.8 last month, but the market seems to be focusing on the official PMI.
The official PMI was released on Saturday and showed a further decline in economic momentum, Commerzbank’s FX strategist Volkmar Baur notes. The risk of deflation in China remains intact “The decline in the official PMI was also broad-based. In the manufacturing sector, both production and new orders fell. In addition, both the subcomponents for the labor market and for price developments showed continued weakness.
” “In order to limit the impact of the weak economy on government bonds yields, the PBoC began actively buying and selling government bonds in the market last week. This was done to lower the current interest rate at the short end and keep it high at the long end. The idea was to steepen the yield curve without withdrawing liquidity from the market as a whole. It seems that the central bank wants to prevent the current interest rates on long-term government bonds from falling further.
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