In November, China’s official manufacturing PMI rose slightly to 49.2 from 49 in October, indicating a continued lack of momentum. Production likely stayed steady, but investment may have gone down even more. Retail sales growth might have gotten a boost from the way numbers are calculated, while trade growth could have improved due to reduced trade uncertainties. The Consumer Price Index (CPI) inflation may have increased to 0.8% year-on-year, with credit growth remaining stable. The new US-China trade deal seems to have helped the manufacturing PMI recover by lowering tariffs and trade restrictions. However, new export orders only showed moderate growth, and domestic demand looked weak. Household spending may have declined as the services PMI fell to a 23-month low.

Trade Surplus and Infrastructure

Export and import growth in November likely surged, partly due to a base effect and the ongoing trade truce. An increase in the monthly trade surplus is expected. Industrial production growth may have remained steady, supported by recovering exports, though fixed asset investment probably declined at a slower rate. The contraction in real estate investment might be easing. Early data suggests that home and land sales improved, and the construction PMI reached a four-month high, indicating better execution of infrastructure projects. CPI inflation could have hit 0.8% year-on-year in November, influenced by food prices. Money and credit growth likely remained stable, despite weak loan demand. Both government and corporate bond financing saw growth. The November data shows a clearly divided Chinese economy. The official manufacturing PMI is still in contraction at 49.2, with the slight improvement mainly due to new export orders from the recent US-China trade deal. This suggests that short-term strength is coming from abroad, not from within the country. The domestic situation continues to look weak, influencing our trading strategy. The services PMI fell to a 23-month low of 49.5, raising concerns about consumer spending. This weakness explains the soft loan demand, even with the government trying to support the economy through bond financing.

Opportunities in Commodities

For commodity traders, the rise in the construction PMI presents a clear opportunity. This indicates a possible increase in government infrastructure spending, which could benefit industrial metals like copper and iron ore. Iron ore futures have responded positively, aiming to reach $135 per tonne, a level we haven’t seen consistently since early 2024. The rise in CPI inflation to a near three-year high of 0.8% is significant, but it doesn’t seem serious enough to push the central bank to tighten its policies. The People’s Bank of China recently kept its key one-year lending rate steady at 3.45%, indicating a preference for stability. In this environment of low but rising inflation and steady policy, we should not expect big swings in the yuan. We are looking at these numbers in light of the deep property sector crisis we faced in 2023 and 2024. Although the decline in real estate investment is finally slowing, it still acts as a significant burden on the economy. This ongoing struggle suggests that any rallies in Chinese equity indices, like the FTSE China A50, may be short-lived, presenting opportunities to sell when prices rise. Create your live VT Markets account and start trading now.

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