The official PMIs for China in August 2025 show a manufacturing PMI of 49.4. This is slightly below the expected 49.5 and the previous month’s 49.3. This is the fifth month in a row that the manufacturing PMI has been below 50, indicating a continued contraction. Low domestic demand is a major factor in this ongoing trend. The non-manufacturing PMI, which covers services and construction, matched expectations at 50.3, up from July’s 50.1. The composite PMI improved to 50.5 from the previous 50.2. Unofficial Caixin/S&P manufacturing and non-manufacturing PMIs will be released on September 1st and 3rd, respectively.

Tariff Developments

In other news, a U.S. Federal Appeals Court ruled that many of Trump’s tariffs on China are illegal, although legal proceedings are still active. This could affect China’s approach to tariffs, but the outcome is still uncertain. The latest data shows a mixed picture of China’s economy, suggesting a cautious trading strategy. The manufacturing sector is still struggling, marking its fifth straight month of contraction. This slowdown has already caused iron ore futures in Singapore to fall below $100 a tonne, a level we last saw consistently in late 2023. Due to this industrial weakness, it may be wise to maintain or create short positions on commodity-linked currencies like the Australian dollar. The AUD/USD pair has had difficulty staying above 0.6500 during August, and this manufacturing miss offers little reason for change. Strategies like buying puts on AUD/USD could help hedge against more negative data from China’s industrial sector.

Economic Divergence

On the other hand, the services sector is showing some strength, remaining in expansion territory and even ticking up slightly. This suggests that targeted efforts, such as the People’s Bank of China’s recent 10-basis-point cut to the one-year loan prime rate, are helping boost domestic consumption. This divergence could benefit specific Chinese consumer-focused stocks, making long calls on ETFs like KWEB or CHIQ an interesting pairing against short industrial exposure. The yuan’s currency market is likely to remain volatile. Weak manufacturing data suggests a weaker CNH, but steady services data may cause authorities to hesitate before aggressively devaluing the currency. We observed a similar situation in 2024, which led to range-bound trading in USD/CNH, making strategies like selling strangles potentially effective if this pattern continues. The recent U.S. court ruling against Trump-era tariffs adds another layer of complexity. Although it’s not a final ruling, it removes a significant long-term challenge and could stabilize market sentiment. We will closely monitor the Caixin manufacturing PMI on Monday for insights from the private sector. A similar weak reading could overshadow the positive tariff news and lead to further declines in global risk assets. Create your live VT Markets account and start trading now.

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