World Economy

China June PMIs fall to 4-month low

Manufacturing momentum in the world's number two economy skidded to a four-month low in June, according to twin surveys released on Friday.

The government's manufacturing Purchasing Managers' Index (PMI), a survey that tracks the health of large and state-owned companies, came in at 50.0 last month, versus 50.1 logged in May and April. The report was bang in line with Reuters' estimates and marked the weakest result since February's 49.0 figure.

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From March-May, the survey logged results above the key 50 level, which separates expansion from contraction. In the seven months before March, the survey remained stuck below 50.

Caixin's China June manufacturing PMI, which tracks smaller-scale private firms compared to the official gauge, also recorded the fastest rate of deterioration in four months. The index reported a 48.6 reading for June, compared with 49.2 in May.

Markets showed little reaction to both surveys, with the Australian dollar flat and mainland equities half a percent higher.

"Overall, economic conditions in the second quarter were considerably weaker than in the first quarter, which means there has been no easing of the downward pressure on growth. Against the backdrop of a turbulent external environment, and in order to avert a sharp economic decline, the government must strengthen its proactive fiscal policy while continuing to follow prudent monetary policy," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

The latest numbers are likely to trigger a debate on whether more monetary support can be expected from the People's Bank of China (PBOC), especially given tepid expectations for second quarter growth.

Strategists widely anticipate gross domestic product (GDP) growth in the April-June quarter, due on July 15, to come in unchanged. GDP expanded 6.7 percent on-year in the first three months of the year, the slowest pace since the global financial crisis but still in line with Beijing's official 2016 target range of between 6.5-7 percent.

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"China has largely been ignored during the Brexit crisis, but it has managed to weaken its currency substantially throughout the period. Focus will turn again to how its stimulus efforts are faring today with the release of its May PMIs," commented Angus Nicholson, IG market strategist, ahead of the release.

While Friday's results were concerning, they may not produce urgent monetary action, according to Tony Nash, founder of analytics firm Complete Intelligence. He doesn't believe cutting interest rates will immediately bolster the economy on the back of overall weak loan demand, but added that he does expect improved economic activity going into August.

Outside of manufacturing, Friday's data flood wasn't entirely bad.

A third survey painted a slightly more uplifting outlook for the country's service sector, which now accounts for the bulk of GDP. The official services PMI rose to 53.7 in June, better than May's 53.1 figure.

Fraser Howie, an independent analyst, cautioned reading too much into one month's reading.

"The trend is more your friend. What it's telling us is the economy is bumbling along at best...there's clearly no signs of any strong recovery," he told CNBC's Squawk Box.

He doesn't anticipate this pattern to change anytime soon, predicting little change in the economy by year-end.

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