Just as investors are being treated to a streak of better-than-expected economic reports from the United States (Tuesday's ISM manufacturing index for January being one of them), they are also receiving good news from China. Well, good news in the form of an orderly slowdown.
Overnight, China's PMI manufacturing index fell more than expected in January, declining to 52.9 from 55.2 two months ago. This latest reading, according to Bespoke Investment Group, is "increasingly beginning to look like a downtrend in the indicator." But not necessarily in a bad way: "To be sure, it's still positive, but based on this indicator at least, it appears that the Chinese government's efforts to slow down economic growth are having some effect."
In other words, fears that China's economy continues to grow too fast in spite of tighter monetary conditions might be overblown. Slower growth -- and keep in mind that the manufacturing index is still in expansion territory -- should ease some concerns about either an overheating economy or the need for Chinese authorities to step on the monetary brakes again.
Alex Bellefleur, financial economist at Brockhouse Cooper puts it this way: "China's PMI numbers are now in a sweet spot, except for the input prices sub-index, which at 69.3 is still too high for policy makers' tastes. Overall, this is consistent with our view that China has now moved from recovery to expansion."
David Berman