Over the past six months, the Caixin/S&P Global China General Services PMI has indicated consistent expansion in the services sector, with readings above 50.

However, there have been fluctuations, with significant slowdowns in September and November, reflecting challenges such as reduced demand and increased competition. Government stimulus measures in October provided a temporary boost, but sustainable growth remains a concern amid global economic uncertainty.

November 2024

• PMI Reading: 51.5down from 52.0 in October.
• Key Insights: The services sector experienced a slowdown in growth, with the expansion of new businesses, including exports, being facilitated. Despite this, companies continued to hire staff and business confidence reached a seven-month high. However, competition has led to a reduction in sales prices.

October 2024

• PMI Reading: 52.0up from 50.3 in September.
• Key Insights: This marked the fastest expansion in three months, supported by Beijing’s monetary stimulus and measures to support the property sector launched in September. New jobs rose slightly, and employment growth continued for the second month in a row. Overall confidence in the sector reached a five-month high.

September 2024

• PMI Reading: 50.3down from 51.6 in August.
• Key Insights: This is the lowest figure since September 2023, with new orders expanding at the slowest pace in almost a year, despite solid growth in export business. Employment has returned to growth, albeit marginally. Input prices rose, reaching the highest level in almost two and a half years, while product prices fell in an attempt to support sales. Business confidence weakened to the lowest level since March 2020.

August 2024

• PMI Reading: 51.6down slightly from 51.8 in July.
• Key Insights: The services sector continued to expand, albeit at a slightly slower pace. New business growth remained stable, with a modest increase in export orders. The level of employment was stable, and the inflation of input costs was moderate.

July 2024

• PMI Reading: 51.8from 51.5 in June.
• Key Insights: There was a slight acceleration in the growth of service activities, with an improvement in new business and export orders. Employment saw a modest increase, and input costs continued to rise, albeit at a controlled rate.

June 2024

• PMI Reading: 51.5which is down from 52.1 in May.
• Key Insights: The services sector experienced a modest slowdown in growth, with new business expansion easing. Employment remained stable and input cost inflation showed signs of easing.

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How is the release and trade tracking likely to be affected?

In general, PMI readings above 50 and rising:

• The improved services PMI suggests strong economic activity, potentially boosting investor confidence and should lead to, at the margin, stock market gains, particularly in sectors such as retail, hospitality and financials.
• A strong PMI should also, at the margin, attract foreign investment and therefore increase demand for the yuan, leading to an appreciation of the currency.

On the other hand, a PMI reading below 50 /decreases

• it is likely to raise concerns about an economic slowdown, which could result in a fall in the stock market, especially in service-oriented sectors.
• may deter foreign investment, reducing demand for the yuan, causing depreciation.

As always, the degree of market reaction depends on how the actual PMI data compares to market expectations:

• Better than expected should, again on the margin, lead to higher prices on the stock markets and appreciation of the RMB
• The worse-than-expected data should lead to a fall in the stock market and a depreciation of the RMB.

As an aside, assessing market response versus what it should it happens if it is usually a decent guide to market positioning and can present decent trading opportunities.

Additional considerations, and they should not be dismissed:

• Recent stimulus measures or regulatory changes may amplify or moderate the impact of PMI data.
• Global economic conditions: External factors, such as global demand and trade relations, also influence market reactions.

And, as always, and again, these warnings should not be dismissed:

• Traders should consider PMI numbers along with other economic indicators and market conditions for a comprehensive analysis.
• Financial markets are influenced by several factors; past performance does not guarantee future results.