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China’s July PMI Falls to 15-Month Low, Negative for Markets

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China’s July PMI

Previously, we noted that China’s vehicle sales fell in June for the first time in over two years. China’s (FXI) (MCHI) 2Q15 GDP came in at 7%, beating market expectations. However, several economists have questioned the data, fearing it does not reflect the true state of the Chinese economy. In this part of the series, we’ll take a closer look at China’s July PMI (purchasing managers’ index).

Markit releases the PMI numbers are released on a monthly basis. On July 24, the flash PMI was released, and the final PMI figures will be released on August 3. For investors, flash PMI figures are important, as they provide early insights into China’s manufacturing sector.

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PMI below 50

The above graph shows China’s manufacturing PMI. In July, China’s flash PMI came in at 48.2, which is a 15-month low and below what analysts expected. China’s PMI has been below 50 for five consecutive months. Figures below 50 are generally associated with a fall in manufacturing activity.

The slowdown in China’s manufacturing sector is a negative for global markets. Companies in the metals and mining space such as Alcoa (AA), BHP Billiton (BHP), and ArcelorMittal (MT) are negatively impacted by the slowdown in China.

Subsectors

A closer look at China’s July PMI data paints a grim picture of that country’s economy. It shows that output, new orders, and employment decreased. New export orders also decreased during the month. Exports are a key pillar of the Chinese economy, and any slowdown in export activity would only worsen China’s slowdown.

In the next part, we’ll explore how aluminum demand is shaping up globally.

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