Macquarie has created a China PMI proxy -- and it looks pretty good

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  • Purchasing Managers Indexes (PMIs) are often seen as the best real-time indicator on economic performance.
  • China does not release advanced PMI reports, known as “flash” PMIs.
  • Macquarie Bank has created its own indicator that “exhibits a strong correlation” to Chinese PMI reports.

Purchasing Managers Indexes, or PMIs for short, are often seen as the best real-time indicator on economic performance.

While they are only surveys, or soft economic indicators, PMIs are seen as reliable lead indicators for what’s likely to be seen in the hard economic data in the period ahead.

Naturally, traders and investors tend to like them, providing them the opportunity to position for the future.

In the United States and Europe, investors even receive “flash” PMIs, released during the actual month the survey was conducted. These are based on a smaller amount of responses, but are usually fairly accurate when compared to the final figure released at the start of each month.

However, while those massive and important economies have flash PMI reports, China, the world’s second-largest economy, does not.

IHS-Markit, the group who compile most of the reports, ceased production of China’s flash PMI report a few years ago, meaning markets had to wait an extra week for the government and its report to arrive.

Bummer, right?

Well, we have some good news for the China watchers among you.

After some trial and error, Macquarie Bank has created a proxy PMI it will release ahead of the official and IHS-Markit reports.

It’s called the “Macquarie Chinese Business Cycle Indicator” (MCBCI) and the bank thinks it’s pretty good guide on how China’s manufacturing sector is faring.

“Impressively, the MCBCI has over time moved closely with the PMIs and exhibits a strong correlation both contemporaneously and with a short lead,” Macquarie says.

“This suggests that the MCBCI provides a good summary of Chinese cyclical momentum.”

Here’s how the MCBCI compares to the average of the government and IHS-Markit manufacturing PMI surveys.

Macquarie Bank

So how are the China manufacturing PMIs likely to print in June?

Macquarie says it’ll be good news for the China bulls.

“The MCBCI ticked up slightly from already strong levels,” the bank said.

“This suggests that Chinese industrial production growth remains solid, despite the recent weakness in Fixed Asset Investment.

“It also suggests that the PMIs will increase modestly in June.”

In May, the government’s official manufacturing PMI stood at 51.9. The IHS-Markit PMI was slightly lower at 51.1. Both were above the 50 level that signals that activity levels improved from a month earlier.

Macquarie plans to release its MCBCI in the third week of every month.

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