Quick take on the China manufacturing PMI: ABN Amro ... "More monetary stimulus expected

ABN Amro quick off the mark with their assessment of what the very poor flash reading on the China Caixing manufacturing PMI means ...

(Give yourself a gold star if you've already guessed...):

Weak China data exacerbates risk off mode

• China manufacturing ... contraction accelerated in August
• exacerbated the current bearish sentiment in the commodities and currency markets
• Onshore yuan was sold off   .... Offshore yuan discount to the onshore rate widened as risk sentiment deteriorated
• Both deliverable and non-deliverable forwards are now implying larger depreciation expectations in the yuan
• In our view, the forwards market are still under-estimating the magnitude of depreciation in the yuan by the end of this year. Our year end yuan forecast against the US dollar is 6.55.
• More monetary stimulus expected
  • The People's Bank of China's intervention activities in the currency market to defend the yuan has drained onshore liquidity and pushed up short term rates
  • Our view that the PBoC is likely to lower the benchmark rates by 25bp and the reserve requirement ratio by 50-100bps may come sooner than later after this morning's data.
  Bolding mine

Author: Eamonn Sheridan