China’s manufacturing and service sectors disappointed

What is going on here?

China’s depleted manufacturing and service sectors have not reached the magic number.

What does it mean?

China’s official Manufacturing Purchasing Managers’ Index tracks the country’s factory activity levels. The index came in at 49.5 in June, below the 50 that indicates expansion, and the same as in May. See, while the subindex tracking manufacturing did score just above 50, many other indices fell below that all-important number and lowered the average. These included new orders, raw materials stocksemployment, supplier delivery dates and new export Orders.

Source: National Bureau of Statistics of China

Why should I care?

Zooming out: Patience can be a virtue… or a vice.

China’s long-awaited economic recovery has investors on edge. Measures of non-manufacturing activity in construction and services fell to 50.5 in June from 51.1 in May, the lowest since December. That threatens China’s goal of 5% economic growth this year. And potential tariffs from the United States and Europe, the country’s two biggest customers, aren’t helping either. Investors are eagerly awaiting China’s third plenary session later this month, where major policy changes could be unveiled. But for now, they are wary: The MSCI China Index rose 23% between January and early June — but has since lost ground.

Source: Google Finance

Bigger picture: America has a distraction.

The US economy is also showing cracks, but it can count on tech giants to lift it up warehouse market. That much was clear in the “equally weighted equity benchmarks”: While the S&P 500 weights the Magnificent Seven more heavily, those benchmarks give disruptive technologies as much space as industrial barometers. And they retreated even further last month. So U.S. corporate balance sheets were shaken by higher interest interest rates, you can see why Citigroup’s U.S. economic surprise index — a measure of how well economic data meets expectations — hit its lowest level since August 2022.