The official manufacturing PMI for China in July 2025 is 49.3, which is below the expected 49.7. This indicates a contraction for the fourth month in a row, driven by lower export growth and weak domestic demand. The non-manufacturing PMI comes in at 50.1, showing slight growth but at its lowest level since last November, missing the anticipated 50.3. The composite PMI is reported at 50.2, down from 50.7 earlier.

Ongoing Structural Issues

Trade talks between China and the US are still facing structural problems. In the days ahead, we expect new insights from the unofficial Caixin/S&P manufacturing and non-manufacturing PMIs, which provide a different view than the official numbers. The consistent decline in manufacturing is a serious warning for China’s economy. Both exports and domestic demand are weak, which may lead to a risk-off sentiment in the coming weeks. This disappointing data suggests that previous stimulus measures are not working effectively. We should anticipate a downturn for industrial commodities, especially those tied to Chinese construction and manufacturing. For example, iron ore is currently around $107 per metric ton, putting pressure on prices. Traders might look to short copper and oil futures or consider puts on major mining stocks.

Currency Markets Impact

The Australian dollar, a key indicator of Chinese economic health, could struggle. The AUD/USD pair has had difficulty staying above the 0.6600 level recently, and this news might drive it lower. We also expect the Chinese Yuan to weaken, as traders test the People’s Bank of China’s willingness to let the USD/CNH go beyond the 7.30 level. For equity markets, Chinese-listed stocks and funds like the FXI ETF are likely to underperform. Investors are becoming impatient due to ongoing property sector issues and low consumer confidence in 2023 and 2024. With the VIX volatility index remaining low, buying call options on it might be a cost-effective way to protect against a wider market decline prompted by these issues. Create your live VT Markets account and start trading now.

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