China’s May Caixin Services PMI came this morning at 41.4, much weaker than expectation (Bloomberg consensus 46.0; April 36.2) and staying deeply in the contractionary zone and being the second lowest since March 2020. Service employment sub-index fell further to 48.5 (vs 49.3 in April), the fifth consecutive monthly decline and the lowest level since March 2021. Companied surveyed cited pandemic control restrictions as an important factor for the weakness in activities.
The improvement in May Caixin Services PMI number from April was notably weaker that what was suggested in the services sector sub-index of the official NBS non-manufacturing PMI that bounced to 47.1 in May from 40.0 in April. In addition to the fact that the Caixin survey focusses on private enterprises, the differently might attribute to that difference in the timing of the survey. The Caixin survey took place in mid-May when the COVID-related restrictions were more stringent than late May when the NBS survey was conducted.
One bright spot in the Caixin Services PMI was the improvement in the output price sub-index which improved to 50.7, entering the expansionary zone, from 48.5 in April. The input price sub-index decelerated slightly to 52.4 in May from 53.7 in April. The improvement indicates some pricing power of business enterprises in the services sector to pass on cost increases to their customers.
China has a busy economic calendar this week. In addition to the Caixin services PMI mentioned above, the market will be focussing on the aggregate financing, loans and money supply figures that are expected to be released between June 9 and 15 (the exact date is not made known) and the trade data scheduled to release on Thursday June 9.
New aggregate financing is expected to rebound to RMB2 trillion in May (Bloomberg consensus) from RMB910bn in April, being help by an increase in government bond issuance and a rebound of new RMB loans to 1.2 trillion from last month’s 545 billion. This implies the growth rate of outstanding aggregate financing remains subdue at 10.2% YoY, partly due to base effect. May money supply is expected to grow 10% YoY (Bloomberg consensus) in May (vs 10.5% in April).
May trade data is scheduled to release on Thursday June 9. Container throughput data in the first 20 days of May suggests recovery in trade growth from the previous month as disruption to logistics and production eased. Bloomberg consensus is calling for exports and imports to rise 8% YoY and 2.5% YoY respectively.
We will also have the inflation data scheduled to release on Friday June 10. Inflation is less a concern for policy makers or the focus of the market for the time being in China. May PPI is expected to fall 6.5% YoY (Bloomberg consensus) from April’s 8.0% as energy and raw materials prices having plateaued and due to base effect. May CPI is expected to inch higher to 2.2% (Bloomberg consensus) from April’s 2.1%. During the month, China added to its state reserves of pork to stabilize and reverse the decline in pork price. Pork has a weight of approximately 4.8% in China’s CPI.