Materials

China's manufacturing activity contraction deepens but ASX miners hit a five month high

Wed 30 Nov 22, 2:19pm (AEST)
China in lockdown
Source: iStock

Key Points

  • China's manufacturing and services data delved deeper into contraction territory in November
  • Covid-related restrictions have hit cities covering almost 60% of China's GDP, according to Barclays
  • Against all odds, the S&P/ASX 200 Materials Index rallied to a fresh five month high

China's manufacturing and services activity for November deteriorated even faster in November, hit by weakening global demand and sweeping covid-related restrictions across nation.

The manufacturing purchasing managers' index (PMI) fell to 48.0 from 49.2 in October, according to the National Bureau of Statistics. This marks the third lowest reading since the beginning of the pandemic and well-below analyst expectations of 49.0.

China manufacturing PMI
China manufacturing PMI (Source: TradingEconomics)

More specifically, steel industry PMI slumped to 40.1 from 44.3 in November, with new orders down another 8.9 points to 34.5, according to Breakwave Advisors. Month-on-month output was flat but the figure remains below the 50 point mark, which separates growth from contraction.

Likewise, services activity tumbled to 46.7 in November from 48.7 in October, which was well-below forecasts of a small improvement to 49.0.

Nationwide restrictions

Barclays Research says China's covid-related restrictions covers nearly 60% of GDP.

China restrictions cover nearly 60- of GDP
Source: Wind, Barclays, SoberLook

Even in the midst of mounting restrictions and depressing PMIs, the market appears to be banking on an eventual reopening.

"Traders added to bets since early Nov when rumors spread over a Covid Zero exit plan...Even amidst a surge in infections & protests, most investors believe a path to reopening is inevitable," Bloomberg reported.

Iron ore miners unphased

The S&P/ASX 200 Materials Index is up 1.40% around noon on Wednesday, breaking out of its recent trading range to a fresh five month high.

This follows a cooler-than-expected Australian inflation print where monthly CPI rose 6.9% year-on-year in October, down from 7.3% in September.

ASX 200 Materials chart
XMJ chart (Source: TradingView)

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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