Unexpectedly, China's NBS PMI surprised higher providing evidence that the China growth story remains undervalued and there is still solid external demand. China's June NBA manufacturing PMI increased to 51.7 above 51.0. The good data was driven by new orders and higher production readings. Production index increased to 54.4 from 53.4 in May while new orders rose to 53.1 from 52.3 in May.
Clearly, rumours of a domestic collapse is far from reality, as China's domestic activity remains resilient regardless of distant signals of decelerations. There has been some slowing due to softer investment activity indicating that the government's drive to shutdown areas of “shadow” banking has been effective. Chinese authorities, in our mind, are doing a decent job balancing the need to deleveraging and support the economy. Micro-tuning in credit availability will likely slow interest rate sensitive areas such as real estate and infrastructure financing but it is unlikely to derail growth broadly. We still anticipate 6.8% GDP growth for 2017.
The other bright spot of the data release was the exports orders index, which continued to improve to 52.0 - a five-year high. Solid export growth alongside general risk appetite should support investors' demand for regional EM FX currencies. From a relative value standpoint traders should be favouring Europe and Asia EM over the US. European growth has surprised to the upside, China's economy slowing is less than expected with plenty of bright spots while the US data has underperformed and political uncertainty makes outlook significantly challenging.
By Peter Rosenstreich