Prakash Sakpal, Economist at ING, suggests that China’s manufacturing PMI has reinforced policy shift to supply-side structural reform from demand-side stimulus and hard-landing fears associated with it, which is bearish for risky assets.

Key Quotes

“The official manufacturing PMI for May was unchanged at April’s 50.1 but the non-manufacturing PMI fell for the second straight month to 53.1 from 53.5 in April. The consensus forecast for the manufacturing PMI was 50.0. There was no consensus for the non-manufacturing PMI. The Caixin manufacturing PMI fell in line with consensus to 49.2 in May from 49.4 in April.

The second consecutive fall in the new orders and the new export orders components of the official manufacturing PMI highlights persistent shock to manufacturing. A 2.3 point fall in the input price component, the first monthly fall since Decemebr, foreshadows slowed recovery from PPI deflation despite another 10% bounce in monthly average global oil price in May. And, a 4.4 point fall in the PMI business expectations component, which followed a 2.3 point fall in April, indicates deteriorating outlook.

We considered the softening of activity data in April as evidence of effective shift in the policy to supply-side structural reform from demand-side stimulus. Today’s data reinforces the policy shift and the hard-landing fears associated with it, which is bearish for risky assets.”