Services sector activity across China expanded at a faster pace during the month of July, despite the nation seeing an increase in fresh COVID-19 infections and the sector likely to face pressure from a similar rise in cases across other countries as well. The Caixin General Services PMI surged from 50.3 in June to 54.9 during July, coming in better than the average reading of 54.1.

The sharp rise in the services PMI reading was fueled by a strong pick-up in new business while new orders also grew at a faster pace since the previous month. An improvement in market conditions and the successful containment of fresh outbreaks of coronavirus across China also helped boost activity across the services sector.

However, firms face pressure due to weak external demand, as new export business remained mostly unchanged in July. The fresh spike of cases owing to the delta variant across China’s key trading partners could keep demand low and hurt the export-oriented economy’s recovery.

On a positive note, businesses in China’s services sector feel more optimistic about the outlook for the coming year, after its sub-index improved considerably from June when it had dropped to the lowest level seen in nine months. However, firms face significant challenges owing to uncertainties related to the pandemic as well as due to a rise in input cost inflation.

Impact on the CNH

The Chinese yuan is trading mostly steady against the US dollar as markets turn their attention towards the upcoming NFP report from the US before making fresh moves.

USD/CNH

At the time of writing, USD/CNH is trading around 6.455.