Markets just got another ominous warning sign about the health of China's economy

(Kevin Frayer / Getty Images)
  • Ofifice data showed Chinese manufacturing PMI activity just fell to the lowest level since July 2016.
  • At a reading of 50.2, manufacturing activity in China is only just above contractionary territory.
  • The Australian dollar briefly extended its falls following the release, before a small bounce off its intra-day lows.

Activity in China’s manufacturing sector slowed to a crawl in October.

Official Chinese data showed the manufacturing Purchasing Managers’ Index (PMI) fell to a reading of 50.2, missing analyst expectations of 50.6.

The October PMI print was also the lowest reading since July 2016, in another sign that China’s economy is starting to splutter amid ongoing trade tensions with the US.

The Australian dollar came under further pressure following the release, initially falling to around 0.7075 US cents before a small bounce. That followed earlier declines from around US71 cents after local inflation data missed expectations.

A reading above 50 for PMI data indicates expansion in a given sector, while a reading below 50 shows activity is contracting.

So at current levels, manufacturing activity in China is still expanding — but only just.

The month of October was the first month that latest round of US tariffs came into effect, after President Trump announced a 10% tariff on another $US200 billion worth of Chinese goods on September 24.

Within the sub-index for manufacturing PMI, export orders came in at 46.9 (48 forecast), meaning the export component is now well into contraction territory. Imports fell to 47.6 (48.5).

In addition, new orders — often seen as a key leading indicator for economic activity — fell to 50.8, down from a reading of 53.8 in May this year.

Key data on China’s economy is being closely watched as the economy undergoes a domestic transition while also dealing with the US trade threat.

Earlier this month, Chinese GDP growth for the September quarter missed expectations for the first time in three years.

Policy makers have made recent efforts to pledge support for the economy, while China’s central bank (PBoC) has taken measures to boost liquidity.

However, TD Securities says the PBoC is unlikely to cut interest rates because that would put more downward pressure on the currency.

The Chinese yuan was little-changed against the USD following the release of PMI data, and stocks in Shanghai have posted steady gains in early trade.

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