Today’s Purchasing Managers Index (PMI) information from China isn’t as bad as some commentators are making out, according to research from Capital Economics.
Data supplied by Markit showed that China’s unofficial manufacturing PMI fell to 47.0, down from 47.3 in August, led by large drops in output and new orders.
This was worse than consensus expectations, and represented the lowest figure since March 2009.
Such data certainly vindicates the recent weakness in the prices of industrial commodities, notably copper, but it was interesting that in the market this morning, after several days of weakness, most of the major companies with exposure to commodities were actually trading higher.
Rio (LON:RIO) was up 2% to 2,239p in morning trade. BHP Billiton (LON:BLT) also advanced 2%, to 1,041p, while Glencore was 2.5% higher at 108.5p after steep drops in recent days. Anglo American (LON:AAL) rose 1.4% to 657p.
Michael Hewson at CMC markets, commenting on the wider rebound in European markets following a couple of days of Volkswagen-led weakness, wondered if the new found strength might be nothing more than a dead-cat bounce.
Certainly there was across the board gloom about the Chinese numbers which, according to Daiwa Capital Markets, showed “nothing to be reassured about.”
“Within the detail of the survey, all key sub-indices – output, new orders, export orders, employment and prices – were weaker,” said Daiwa.
“So, while the services sector is admittedly in better shape, there’s certainly nothing to be reassured about by today’s figures.”
But over at Capital Economics they took a more measured view.
“We think the gloom prompted by these numbers is a little overdone,” Capital wrote in a morning flash note.
“Note first that September’s reading is only slightly lower than August.
“The headlines might have been very different if the PMI had been just a few tenths of a point higher.
“While the latest figures are the lowest since March 2009, they are still well above that low and only slightly below levels seen several times since 2009 from which they have quickly rebounded.”
What’s more, says Capital, the full effects of the current stimulus have yet to be felt. There are also significant one-off factors that may be feeding into the numbers, such as major factory closures during the World War II commemorations held over recent weeks.
Finally, according to Capital’s reading of PMI data, only a number below 45 would actually signal an outright contraction in manufacturing activity.
Instead, argues Capital, “the recent weakness in the manufacturing PMI has not been corroborated by other data, including industrial production. Alternative leading indicators, such as credit growth are more encouraging”.
In that light, across the board rises for miners looks a little bit more understandable, albeit that they are taking a lead from the rest of the market.
Will this strength continue?
“Overall, we continue to expect the news from China to improve over the remainder of the year, helping sentiment towards commodities to recover,” said Capital.
If that’s true, mining executives the world over will be breathing prolonged sighs of relief, but we will wait and see.