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Surprise From China, But No Fundamentals Have Been Changed

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The Chinese manufacturing gauge unexpectedly increased this month. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics which was at 50.5 topped the forecast of the earlier estimates. Meanwhile, the Australian dollar rallied and Copper advanced as the immediate worries on the economy eased.

A surge in the new orders of components, from 51.3 to 52.3, was largely responsible for the pick-up in the headline index. This appears to reflect stronger foreign demands as the new export orders subcomponent rose from 51.9 to 53.9, its highest level in over four years. The output component remained unchanged from last month’s 51.8.

Today’s report contrasts with August data that showed weaker growth and may ease pressure for stimulus that is broader than the limited liquidity injections and expedited spending on railways that Premier Li Keqiang’s government has enacted. With the euro region and Japan battling to shore up expansions, a trough in China’s slowdown would aid a patchy global recovery.

Economic activity in the manufacturing sector only showed signs of stabilization in September, but it may not change the trend of the weak economic growth. The property downturn remains the biggest downside risk to growth, and we should continue to expect more monetary easing from the PBOC in order to steady the recovery.

Robust export demand is helping China to withstand a property slump. China’s trade surplus climbed to a record in August as exports rose on the back of increased shipments to the U.S. and Europe. New home prices fell, except two of the 70 cities monitored by the government last month, the statistics bureau said last week. This is the most since January 2011, when the government changed the way it compiles the data.

Finance Minister Lou mentioned two days ago that the economy is stable and job creation has been sound, damping speculation of broad-based stimulus. The government won’t make major policy adjustments in response to changes in individual indicators, he said, echoing comments made by Premier Li Keqiang earlier this month.

In the latest step aimed at supporting the sliding property market, China’s four biggest banks may loosen terms for mortgage lending. Criteria for loans to first-home buyers may be eased and people who have paid outstanding mortgages may be considered eligible for first-home status.

Target easing measures will continue, especially since the 3Q growth carries the risk of falling below 7.4%.

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