Chinese Yuan Slides to One-Month Low on Manufacturing, Trump Trade Threats

The Chinese yuan fell to a one-month low against the US dollar to close out the trading week, driven mostly by sluggish manufacturing and renewed trade threats by the White House. Now that China has hit the reboot button on the economy, could Beijing contend with another trade spat with the US?

China’s manufacturing industry has been the hardest hit in the domestic market due to slowing export demand. Despite factories resuming production at near capacity, foreign demand may not be enough to spur activity that can help stimulate the economy. And the evidence is in the data.
The Caixin/Markit manufacturing purchasing managers’ index (PMI) for April came in at 49.4, down from the 50.1 reading in March – anything below 50 indicates a contraction. The median estimate was 50.3.
However, the National Bureau of Statistics (NBS)’s manufacturing PMI clocked in at 50.8 last month, slightly down from 52 in the previous month. The non-manufacturing PMI rose from 52.3 to 53.2.
Why the discrepancy? The private survey consists of small-, medium-, and large-sized businesses. The government’s official PMI survey usually polls bigger businesses and state-owned enterprises (SOEs).
Either way, these PMI surveys are showing an improvement in the broader market. In February, the official manufacturing PMI cratered to an all-time low of 35.7, and the Caixin/Markit survey also plunged to a record low of 40.3. Both parties shared the same sentiment about sliding demand from foreign markets due to the coronavirus pandemic.
Zhengsheng Zhong, chief economist at the CEBM Group, a subsidiary of Caixin, said in a statement:

China’s economic recovery was hindered by shrinking foreign demand, despite the domestic epidemic being largely contained. While manufacturing output expanded at a faster clip, export orders plunged amid sluggish demand [and] limited recovery in domestic consumption.

On Friday, President Donald Trump threatened to slap new tariffs on Beijing over its mishandling of the COVID-19 outbreak. A day earlier, the president suggested that the novel coronavirus may have originated in a virology laboratory in Wuhan near the wet market that was ground zero for the outbreak. The Wuhan Institute of Virology rejected the allegations, though it has been reported that the institute has worked on coronavirus research for years.
Next week, trade, inflation, industrial production, retail sales, and vehicle sales data will be published.
The USD/CNY currency pair settled flat at 7.0623. The EUR/CNY advanced 0.25% to 7.7555, from an opening of 7.7364.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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