China: Edging back to contraction – TDS

China's April manufacturing PMI remained in expansion, but is edging dangerously back into contraction territory, per TD Securities. USD/CNY is trading at 7.0828. 

Key quotes

“China's official April manufacturing PMI was very close to expectations at 50.8 (TD 50.0, mkt 51.0). The breakdown revealed that output and new orders fell from the previous month, but remain in expansion territory at 53.7 and 50.2, respectively. The resilience in output in particular is impressive, but looks unsustainable.” 

“Demand side weakness is just beginning. The drop in new export orders to a record low of 33.5 from 46.4 in March, reflects the dramatic collapse in overseas demand, a factor that will weigh on recovery.”

“We continue to think that China has little interest in utilising the CNY as a tool to boost trade, especially as a weaker currency will do little to boost exports at a time when external demand is collapsing. Nonetheless, if our view of a firmer USD into the next few months proves correct, expect USD/CNY to move higher to our forecast of 7.20 by end Q3 20.”