China PMI Plunges To 11-Month Low, Employment Weakest In Over 4 Years

Missing expectations badly, HSBC’s Flash China PMI for July printed at its lowest in 11 months (a dismal 47.7) making this the worst 4-month collapse in the manufacturing indicator in three years (and diverging dramatically from the fence-sitting unreality of the Chinese government’s own PMI index). Under the surface things were even worse. The employment sub-index plunged to 47.3 – its lowest in 52 months. Weaker new orders confirm the “continuous slowdown” in China’s manufacturing sector, and as HSBC’s chief China economist Hongbin Qu, said: “The lower reading of the July HSBC Flash China Manufacturing PMI suggests a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking. This adds more pressure on the labour market. As Beijing has recently stressed to secure the minimum level of growth required to ensure stable employment, the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilise growth. ‘Fine-tuning’ seems like a major understatement given this reality. One wonders whether the recent outperformance of gold prices has been front-running the coming shift from ‘fine-tuning’ to outright RRR cuts – bringing with it that 2011 deja vu that sent gold to an all time high – domestic inflation.

HSBC China PMI drops to 11-month low, diverging dramatically from the government’s version (for now)…


… as Employment and New Orders also collapse…


Paradoxically, this is bullish for gold because it means that very soon the Politburo and the PBOC will have no choice but to abandon the Likonomics-forced consumption driven “rebalancing” and attempt to salvage what growth there is, either through a series of aggressive RRR cuts, or just as aggressive interest rate reduction. Either way, look for liquidity in the system to inevitably ramp up, and with it, inflation.

As for what happens when Chinese gold demand is truly unleashed, well – we have seen that movie before.



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