The final China PMI for May is set to be released, including the Caixin Services and Composite PMIs. Recent reports show that China’s May Manufacturing PMI rose slightly to 49.5, while the Non-manufacturing PMI dipped slightly to 50.3. The Caixin Manufacturing PMI decreased to 48.3 from 50.4. Authorities have promised more stimulus, with announcements expected around June 18-19. The PMIs from China’s National Bureau of Statistics (NBS) and Caixin/S&P Global differ in focus and methods. The NBS PMI mainly looks at large, state-owned companies across various industries, while the Caixin PMI focuses on small and medium-sized enterprises (SMEs) in the private sector. The NBS surveys around 3,000 companies, giving a broad view of traditional industries, while Caixin surveys about 500 firms, emphasizing export-driven and tech-oriented companies. NBS PMIs are released monthly on the last day, covering both manufacturing and services. Caixin PMIs are published on the first business day of the month, focusing only on manufacturing and services. The NBS PMIs provide insights into policy-driven economic stability, while Caixin reflects current market conditions. Together, they paint a detailed picture of China’s economic situation from both macro and micro perspectives. Though the overall PMI figures are close to the critical 50 mark between contraction and expansion, the differing numbers reveal unique trends within China’s industrial and service sectors. There’s a minor improvement in manufacturing data from official reports, while the private sector shows a different story—likely reflecting challenges faced by export-focused and tech-driven companies that are more vulnerable to global demand fluctuations. Looking ahead, the upcoming policy support, with potential announcements in mid-June, adds a new factor to consider. Markets often anticipate stimulus, but the timing and scale can vary. The difference between official manufacturing data and private sector figures suggests that larger companies may be coping better with lower orders thanks to government support, while smaller firms struggle without the same backing. When there’s a growing gap between these two readings, it historically precedes shifts in market sentiment, affecting swap rates and implied volatility in regional assets. We should see this gap not as a minor issue, but as an early indicator of changes between policy directions and real business performance. On the policy side, the non-manufacturing number staying slightly above 50 indicates ongoing domestic demand, but the downward trend is concerning. If this becomes a lasting trend, we may need to adjust our expectations, especially regarding consumption-related inputs. When the Caixin data is released this week, we should focus not only on the overall numbers but also on key sub-indices like new orders, input costs, and employment. These sub-indices often provide valuable insights for predicting short-term trends and cross-asset hedging. Additionally, following the previous weak private sector data, market positioning has become more cautious. Short-term volatility markets are factoring in further drag through early July, impacting CNH and A-shares, as well as regional FX pairs. This could change quickly, especially if June announcements align the rhetoric with concrete actions. There’s a limited opportunity. If policy indications align with real-time data, it might be a good time to reduce downside protection and adjust for potential recovery—especially in interest rate curves that closely follow onshore trends. On the flip side, if the upcoming services and composite figures show further weaknesses, this could validate cautious market positions, especially considering the retail and SME responses from last quarter when weak numbers persisted over several months. We must keep an eye on whether the forward-looking components in the PMI data improve or merely stabilize. Shifts in these components often signal broader changes in market expectations and risk appetites. This period—between data releases and policy responses—is where markets can misprice risk. Discrepancies often occur between the data and how quickly authorities implement stimulus, and it’s in these short-term gaps that positioning becomes crucial.

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