China's Manufacturing Sector Just Hit A 51-Month Low

The official China PMI eased from 49.4 in January to 49.0 in February, its lowest level in 51 months. The PMI number for February fell short of consensus expectations of 49.4.

According to Nomura analyst Yang Zhao, the PMI is likely headed lower from here, despite the possibility of more government policy easing in China.

“We expect the official PMI to fall further during the year, although some stabilization or even a rebound is likely in March due to seasonal patterns,” Zhao explained in a new note.
 

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In addition to the PMI number, China reported an official non-manufacturing PMI of 52.7 in February, down from 53.5 in January.

Not all of China’s February data was negative. Seasonally-adjusted property prices rose 0.6 percent month-over-month and 5.3 percent year-over-year. Both of these numbers were improvements over January’s numbers.

China’s central bank also announced another reserve requirement ratio cut yesterday to free up liquidity in the economy.

“Today’s PMIs showed activity growth was weak at the beginning of this year, which likely contributed to the RRR cut announced yesterday,” Goldman Sachs analyst Maggie Wei explained in a new note. Goldman is now looking to China’s February IP data to be released on March 12 for a clearer picture of the current growth situation in China.

The iShares FTSE/Xinhua China 25 Index (ETF) FXE is down 12.5 percent year-to-date.

Disclosure: the author holds no position in the stocks mentioned.