Chinese manufacturing PMI popped to the 49.0 level in February from 45.3 in January sparking hope that Chinese domestic demand will supplant China’s reliance on exports. China is spending an enormous percentage of GDP on stimulus to try and make that happen. to my mind, over anything but the very near-term this strategy is destined to falter. Exports are the driver of movement into the middle class and without robust exports, upward mobility will be difficult or impossible to sustain.Many hope China will lead the world out of recession, but I think the world will have to lead China out.
Chinese shares gained better than 6% on the news and commodities are somewhat firmer this morning as the market resurrects the reflation trade, again. US futures are up about 1.5% after another slide yesterday, helping boost EUR/USD from its trip below 1.25 overnight. ADP employment and US service sector PMI are the data highlights this morning. Dealers are geared for poor numbers for both.
