We're Moments Away From 2 Significant Chinese Data Points
HSBC PMI for February is out at 8:45 p.m. ET, and analysts polled by Bloomberg are looking for the index to decline to 50.6, from the previous reading of 52.3. The Flash PMI declined to a four-month low of 50.4.
Bank of America's Ting Lu has previously explained why the official and flash PMI often diverge. He says this is because the HSBC index focuses more on small and medium enterprises. Chinese export manufacturers tend to be smaller scale, so, "the HSBC PMI sample could also have more exposure to exports. Click here for Markit's explanation on the difference between the two PMIs.
Ting expects the official number to rise to 50.5 but warns against paying too much attention to PMI readings in January or February because of the impact of the Chinese New Year holiday.
In a note last month, he explained just how the Chinese New Year holiday impacts the two reports making them both unreliable:
Neither the NBS nor the HSBC could do a good job in creating PMI during the Chinese New Year holiday. First, there could be a large amount of missing values for already small sample sizes (HSBC at around 500, NBS at 3000) due to the holiday. This is especially true for the HSBC February flash PMI this year as the holiday was from 9 to 15 Feb and the private sector’s holiday could last until end-Feb. Second, PMI data are heavily seasonally adjusted, but the season adjustment is quite inaccurate due to the different timing of CNY holidays and short history (since year 2005).
Societe Generale's Wei Yao expects the official reading to rise to 51. "The unexpected decline of 0.2 points in January was partly due to insufficient adjustments for seasonality, which should be reversed in February and March." She thinks Chinese manufacturing "is still positive on balance, given positive signs from several other leading indicators".
Here's a look at the trajectory of both the official and HSBC flash PMI since 2005:
