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China’s Economy Continues to Lose Momentum Amid Trade Talks

James Hyerczyk
The PMI data comes on the heels of the announcement of weak 2018 GDP numbers. The combination of the two pieces of data confirms that China’s economic slowdown is deepening. This is helping to create some urgency for the Chinese government to strike a trade deal with the U.S. at this week’s meetings.

The major Asian equity indexes are following Wall Street’s lead Thursday, posting early gains on the back of the strong U.S. stock market rally. The catalyst behind the rally is the dovish U.S. Federal Reserve, which left its benchmark interest rate unchanged as widely expected, but stressed it would be “patient” when considering future rate hikes.

At 03:21 GMT, Japan’s NIKKEI 225 Index is trading 20740.64, up 184.10 or +0.90%. Hong Kong’s Hang Seng Index is at 27977.86, up 335.01 or +1.21% and the South Korean KOSPI Index is trading 2213.28, up 7.08 or +0.32%.

In China, the Shanghai Index is trading 2601.57, up 25.99 or 1.01%. Most of its gains are being fueled by the bullish Wall Street results, but the rally is likely being capped by potentially bearish news about China’s economy. China’s official data showed that manufacturing activity in January contracted for the second consecutive month.

China Manufacturing PMI Misses for Second Straight Month

The Chinese government said on Thursday its manufacturing activity contracted for the second-straight month in January. This served as another sign that the world’s second-largest economy is slowing down as the country battles domestic issues and its on-going trade dispute with the United States.

The official manufacturing Purchasing Managers’ Index (PMI) for January was 49.5, according to the Chinese National Bureau of Statistics. Although the number was higher than the 49.3 forecast and the 49.4 reported for December, it still came in under 50 which means it is in contraction territory for the second consecutive month.

In other news China’s Services PMI for January came in at 54.7, higher than the 53.8 reported the previous month, according to the official data. This was good news considering that the services sector accounts for more than half of the Chinese economy and this likely softened the blow to the economy from the weak manufacturing PMI number.

Investors shouldn’t read into the better services PMI number, however, since all signs are pointing to a loss of momentum to China’s economy.

China’s Weakening Economy Creating Urgency to Complete Trade Deal

Heading into this week’s two-day high-level trade talks in Washington between the U.S. and China, the data shows that the Chinese economy is on weak ground.

The PMI data comes on the heels of the announcement of weak 2018 GDP numbers. The combination of the two pieces of data confirms that China’s economic slowdown is deepening. This is helping to create some urgency for the Chinese government to strike a trade deal with the U.S. at this week’s meetings.

The U.S. and China have set a deadline of March 1 to strike a deal, or China faces increased tariff pressure from President Trump.

This article was originally posted on FX Empire

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