China’s Economy Still Matters

QI TAKEAWAY —  China’s slowing will inevitably induce a deflationary impulse, which is on approximately no one’s radar. The urge to stay on the curve steepening trade should be resisted as this inherently reinforces curve flattening.

  1. China’s manufacturing PMI was 49.2 in October, just below September’s 49.6 print as energy remains constricted; crude stockpiles hit 919 million barrels by October 24, 59% of capacity and the lowest since November 2018, and 13% of coal capacity remains offline
  2. At 31.7, ISM Mfg Customers’ Inventories are at their highest levels since February, despite lingering supply chain woes; as is the case with China, the globe’s marginal driver of demand, New Orders in the U.S., appear set to decline as inventories are replenished
  3. China’s services and construction PMI had a headline of 52.4 in October, shy of the 53.0 consensus forecast and well below September’s 53.2; economic activity in the world’s second largest economy is at the cusp of contracting, bringing with it a sizable deflationary impulse