Risk Sentiment Should Improve As Chinese Economy Rebounds

China’s factory and services activity fell into contraction last year, as the coronavirus restrictions continued, hurting the economic activity. But, this month both sectors bounced back amid a rapid rebound in economic activity after Beijing dropped its zero-Covid policy. Below are yesterday’s numbers from the PMI:

China January Official PMI

• Manufacturing for January 50.1 points vs 49.8 points expected
• December manufacturing was 47.0 points
• Services 54.4 points vs 52.0 points expected,
• December services were 41.6 points
• Composite PMI for January 52.9 points
• December composite PMI was 42.6 points

Also out were the Industrial profits data:

• 2022 Industrial profits -4.0% YoY (prior -3.6%)

Although it wasn’t all positive due to concerns for small and medium-sized manufacturers and weak global demand, according to analysts. The official manufacturing purchasing managers’ index (PMI) jumped to a four-month high, leaving behind contraction, with the rebound being broad-based, as all five subsectors increased.

The official services PMI, which measures business sentiment in the services and construction sectors jumped to 54.4 in January from 41.6 in December. So, in total, the report was positive and today’s Caixin manufacturing also leaned clearly on the positive side, which means that the demand for commodities will pick up further in the months ahead, especially as we avoid a global recession according to the recent data. Gold will likely push above $2,000 while this might also help cryptocurrencies to some degree.