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China's Manufacturing PMI Grows Below Expectations

Chinese manufacturing during April expanded, but was still below market expectations. The debate about the need for a continuation of the stimulus also spread. Factory activity in China in general expanded in April, but at a slower pace than market expectations and the previous month's figures. 

Manufacturing PMI data released by the Chinese Statistics Department showed the index number was at 50.1, lower than the level of 50.5 in March. A similar slowdown also occurred in the Manufacturing sector at the level of Small and Medium Enterprises (SMEs), as seen in the Caixin Manufacturing PMI data which expanded at the level of just 50.2, lower than expected to be 50.9 from the previous month's level of 50.8.

 

The export order sub-index, which is one component in the calculation of the Manufacturing PMI, has not shown a significant improvement trend. This data shrank for 11 consecutive months due to the impact of trade wars with the US and declining demand from other Asian countries.

However, optimism that China and the US will reach an agreement in the coming weeks has at least reduced concerns among Chinese exporters. If the two countries succeed in ending the tariff war, this is at least believed to be helping to restore China's economic activity which has been hit hard since last year.

China's Economic Recovery Not Stable

Some analysts have predicted a slowdown in China's Manufacturing PMI, and see that recovery in March will only last temporarily. Some manufacturers are believed to be deliberately hoarding supplies during March to take advantage, following the announcement of tax cuts by Beijing on April 1.

The situation reaffirms that China's economy is currently struggling to recover even though it has received stimulus support from the government. Weak manufacturing activities and together with shaky construction growth have sparked debate about how much more stimulus is needed to promote sustainable recovery.

AUD / USD Slumps as Australian CPI below Expectation

Australia's weak CPI report in the first quarter of 2019 increases the probability of a decline in RBA interest rates this year. The Australian dollar fell sharply. The Australian Bureau of Statistics released data on first quarter / 2019 consumer inflation at the level of 0.00%. This achievement was lower than the 0.5 percent increase (q / q) in the previous quarter, and worse than the market forecast which previously estimated a decline of only 0.2 percent.

According to ABS, the most significant price increase during the first quarter came from vegetable products, fruit, secondary education fees, and motorized vehicles. The increase in horticultural products (vegetables and fruits) occurs due to drought and bad weather conditions which reduce supply in the market. 

On the other hand, there was also a sharp decline in crude oil prices at the end of 2018 which affected Australian inflation in the first quarter of this year. However, ABS projects if the condition of consumer inflation will improve in the next period. The increase in the significance of oil prices in April was one of the ABS factors predicting a CPI rebound in the second quarter.

Australian Dollar Weakens Sharply

The release of quarterly inflation which was below expectations immediately put pressure on the Australian Dollar down to close to the psychological level of 0.7000 against the US Dollar. At 09:50 WIB, the AUD / USD pair was at the level of 0.7034, weakening 0.93 percent from the daily Open price.

"Today's inflation data will increase pressure on the RBA to immediately cut interest rates to lower levels. However, we expect the RBA to at least wait for a further slowdown, both from inflation and the labor sector, before cutting interest rates in August," Ben Udy, Economist at Capital Economics, said.

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