Is China turning the corner?
However, not all of the news was rosy. For example, the Caixin Manufacturing PMI for China was 49.4 in April compared to 49.7 in March and was below the market consensus of 49.9 (see “Still under water,” right). This was the fourteenth consecutive monthly contraction. The bears on the Chinese economy cited this report as evidence that there is more trouble ahead for China.
While the chart shows manufacturing is still in contraction mode, there is room for optimism. Although the April report was below consensus and the 50-point growth/contraction benchmark, looking back to September 2015, it is obvious that the numbers in recent months, while still negative, are “less bad.” At this rate of improvement, these figures will move back into growth mode very soon.
A majority of analysts still say the worst is yet to come for China’s economy; our analysis suggests the opposite is true.
China’s Leading Economic Index — which has been in a five-year contraction — posted its strongest level for February (99.04) since 2014. This, along with other positive leading indicators, is a sign of hope. If we are correct that China’s economy is turning the corner, then market participants should be trading crude oil, copper, silver and platinum from the long side on breaks.