Chinese Manufacturing Weakens In January; Crude Oil Retreats

Asian shares are under pressure and facing choppy trading on Monday following the release of official Chinese manufacturing data for January that weakened and showed further contraction.

Crude oil is slumping on Monday with U.S. (Nymex) March futures down – 1.67 percent to 33.06 a barrel.

China’s official purchasing manager’s index declined to 49.4 percent in January from 49.7 in December, according to China’s National Bureau of Statistics, marking the 6th consecutive month of decline.

A reading below 50 signals economic contraction.

China’s non-manufacturing PMI dropped to  53.5 in January from 54.4 in December.

Meanwhile, China’s Caixin Manufacturing PMI also showed weakness and signaled a deterioration in operating conditions at the start of 2016.

China’s seasonally adjusted PMI, a composite indicator that is designed to provide a snapshot of operating conditions in the manufacturing sector, remained below 50 for the 11th consecutive month.

China’s Caixin Manufacturing PMI came in at 48.4 in January, barely above the 48.2 reading in December, signaling a modest deterioration in the overall health of the China’s manufacturing sector.

Weaker client demand led manufacturers to discount their prices charged again in January, extending the pace of deflation to 18 months.

Production at Chinese goods producers dropped for the second consecutive month in January.

New orders declined at the softest pace in 7 months.

Commenting on China’s General Manufacturing PMI data, Dr. He Fan, Chief Economist at Caixin Insight Group, said the following:

“Recent macroeconomic indicators show the economy is still in the process of bottoming out and efforts to trim excess capacity are just starting to show results. The pressure on economic growth remains intense in light of continued global volatility.”

“The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing. It also needs to push ahead with existing reform measures to strengthen market confidence and to signal its intentions clearly,” Dr. He Fan added.

  • Correction- U.S. construction spending for December will also be reported on Monday in addition to PCE inflation and ISM. During the last post today, construction spending was left out on the economic calendar.

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