China PMIs Diverge as Services Expand and Tariffs Hit Manufacturing; AUD/USD Holds Gains

• China’s Manufacturing PMI rose slightly but remains below 50.
• Services sector shows positive growth with Non-Manufacturing PMI at 50.5.
• Trade agreements between the US and China reflect improving economic sentiment.

China’s Economic Data Sends Mixed Signals on Growth

China’s recent economic data released on June 30 indicates a mixed outlook for its economic vitality, as recent PMI scores illustrate opposing trends in the manufacturing and services sectors. The National Bureau of Statistics (NBS) reported a marginal uptick in the Manufacturing PMI, rising from 49.5 in May to 49.7 in June, yet it remains under the critical 50 mark that separates expansion from contraction. Contrastingly, the Non-Manufacturing PMI enjoyed better fortunes, climbing from 50.3 to 50.5, suggesting that the services sector’s expansion continues amidst ongoing challenges arising from US tariffs.

Trade Agreements and Tariff Implications on Manufacturing

June’s PMI results tend to align with an improving sentiment regarding China’s economic outlook, as evident by Citi’s decision to raise its growth forecast for 2025 from 4.7% to 5%, which aligns with Beijing’s own targets. Following the announcement of a trade agreement between the US and China on June 25, expectations for potential recovery in the export sector have surged. Although both countries have made strides towards negotiation, significant tariffs remain, with US Treasury Secretary Scott Bessent highlighting ongoing tariffs of 30% on China, along with specific restrictions still in place, which could hinder any substantial recovery in the manufacturing sector.

Market Reactions to Economic Fluctuations in China

For traders, this week is undoubtedly pivotal, especially as market responses to the YunPMI data are closely monitored. The Hang Seng Index reported a decline, moving from a high of 24,275 to a low of 24,173, presenting an unfortunate reflection of investor sentiment amid the rising uncertainties. At the same time, the AUD/USD fluctuated, initially dipping to a post-report low of $0.65365 before slightly recovering to a current level of $0.65409. The volatility in these figures underscores how sensitive traders are to changes in China’s economic environment, considering it might influence broader market trends globally.

In summary, China’s economic landscape showcases a notable divergence between its manufacturing and services sectors, as indicated by the latest PMI data. The rising Non-Manufacturing PMI signifies growth in services, while the manufacturing segment suffers from the ongoing effects of US tariffs. As traders navigate these challenging waters, the focus remains on upcoming data releases and the response of the markets to potential shifts in economic policy.

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