A Chinese manufacturing index rose and economists have pared forecasts for cuts in interest rates and bank reserve requirements as confidence grows that the world’s second-biggest economy is stabilizing.
The preliminary, or flash, reading was 49.1 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, after a final level of 47.9 for September. China will probably keep the benchmark one-year lending rate at 6 percent through the end of 2012, based on median estimates in a survey conducted Oct. 18-22, instead of prior forecasts for a quarter percentage-point reduction.
A rebound in China would help bolster confidence as Europe struggles to contain the effects of its debt turmoil and a global slowdown hits corporate earnings. Strength in the Chinese economy may encourage investors to keep paring bets for an Australian interest-rate cut after a report today showed that that nation’s consumer prices exceeded forecasts last quarter.
“The flash PMI reading confirmed that China’s recovery is on track and no further monetary policy easing is warranted,” said Joy Yang, chief Greater China economist at Mirae Asset Securities (HK) Ltd., who formerly worked for the International Monetary Fund. “China will maintain the status quo in monetary policy for at least another six months, during which there will be no interest-rate cut and at most one cut in the required-reserve ratio.”
The MSCI Asia Pacific Index of stocks was down 0.5 percent as of 5:43 p.m. in Tokyo, while China’s benchmark Shanghai Composite Index rose 0.1 percent.
A reading above 50 in the purchasing managers’ gauge indicates expansion, and today’s data would mark the 12th straight contraction. A separate, government-backed index, which showed a second straight contraction in September, is due to be released Nov. 1. The final HSBC-Markit index for October will be published the same day.
The survey may bolster prospects that China’s expansion will rebound from a three-year low after official data showed exports, production and investment accelerated last month. The Communist Party is set to begin a congress Nov. 8, part of a once-a-decade power handover.
China may lower the reserve ratio by a half point by the end of the year, the Bloomberg survey showed, compared with the full point projected in September. Five of 25 economists surveyed forecast one lending-rate cut in the fourth quarter, with the rest projecting no change. In the previous survey conducted in September, 15 out of 25 economists expected at least one reduction in rates through year-end.
Today’s report follows data showing industrial production in September rose a more-than-estimated 9.2 percent from a year earlier, the first pickup in four months. Retail sales climbed 14.2 percent, the most since March, and fixed-asset investment excluding rural households for the first nine months of the year increased 20.5 percent.
Even so, China’s government won’t provide a large economic stimulus and a strong rebound in growth is unlikely, Song Guoqing, an adviser to the People’s Bank of China, said Oct. 18. Still, slowing inflation gives China’s central bank room for “tweaking” monetary policy, said Song, an academic member of the central bank’s monetary policy committee.
“We are starting to see a turnaround in China’s economy,” Donna Kwok, an economist at HSBC in Hong Kong, said in a Bloomberg Television interview. At the same time, China will need to keep rolling out easing measures to secure growth given challenges including “very sluggish” global trade flows, Kwok said.
U.S. stocks retreated yesterday, with the Dow Jones Industrial Average slumping the most since June, as companies from 3M Co. to DuPont Co. posted disappointing results and commodities erased their gain for the year.
Some companies see improvement coming. China Cosco Holdings Co., the nation’s largest listed shipping company, said the industry will expand as Chinese economic growth picks up momentum. “We’re only beginning to see signs of recovery,” China Cosco Chairman Wei Jiafu said in an interview yesterday.
Elsewhere in the Asia-Pacific region, Australia’s trimmed mean gauge of core consumer prices rose 0.7 percent from the previous quarter, compared with the median forecast for a 0.6 percent gain. Traders priced in a 77 percent chance of a rate reduction Nov. 6, down from 95 percent yesterday, swaps data compiled by Bloomberg showed after the figures were released.
Vietnam’s inflation accelerated for a second month, reducing the scope to ease monetary policy and spur an economy set to grow at the slowest pace in 13 years.
In the U.S., the Federal Open Market Committee will decide on monetary policy at the conclusion of a two-day meeting, the last before the presidential election. Data on mortgage applications and new-home sales are also due, with the latter probably rising in September to the fastest pace in two years, according to a Bloomberg survey.
Euro-area services and manufacturing output contracted more than economists forecast in October and business confidence in Germany unexpectedly fell to a 2 1/2-year low this month, reports showed. Italian consumer confidence gained for a second month in October.
“It is increasingly clear that no further measures to stimulate growth are needed” in China, Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said in a note. “Markets may be disappointed to realize that Chinese recovery will be gradual and no new stimulus is forthcoming.”