China’s Factory Gauge Rebounds in February After Stimulus

A Chinese manufacturing gauge rebounded in February, suggesting stimulus efforts and the U.S. recovery are supporting factories in the world’s second-largest economy.

The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.1, exceeding the median estimate of 49.5 in a Bloomberg survey and up from January’s 49.7. Numbers above 50 indicate expansion.

The first reading of momentum in February may alleviate concerns of a deeper downturn after the economy expanded at the slowest pace in 24 years in 2014. China’s consumer-price index rose the least in more than five years in January and factory-gate deflation deepened, giving the central bank more room to follow up on November’s interest-rate cut and this month’s reduction of banks’ reserve requirements.

“Today’s data point to a marginal improvement in the Chinese manufacturing sector going into the Chinese New Year period in February,” Qu Hongbin, chief China economist at HSBC in Hong Kong, wrote in a note. “However, domestic economic activity is likely to remain sluggish and external demand looks uncertain. We believe more policy easing is still warranted at the current stage to support growth.”

The Australian dollar advanced after the report, while shares in China were little changed at 10:45 a.m. local time.

Readings of output and new orders both improved. The report, known as the Flash PMI, is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.

CNY Effect

The reading may have been influenced by the week-long Chinese New Year holidays, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.

“More policy easing measures, such as expansionary fiscal policy and monetary easing in the form of RRR or interest-rate cuts are still needed,” he said.

China’s broadest measure of new credit rose for a third-straight month in January, suggesting monetary easing is helping spur lending. Another bright spot for the economy last year was exports to the U.S., raising prospects demand from the world’s largest economy will cushion China’s slowdown.

— With assistance by Xiaoqing Pi, and Xin Zhou

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