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China: slowdown continues

China economy remains in the centre of market attention. Today’s data showed that China HSBC manufacturing PMI improved a little in April, but remains in the contractive zone since the beginning of the year (48.3 vs. 48.0 in March and forecasted 48.4). A reading below 50 signals contraction, while a figure above 50 suggests growth.

The report followed data last week showing China’s expansion moderated to the slowest pace in 6 quarters. Economic growth slowed to 7.4% y/y in Q1, from 7.7% in the Q4 2013.

Prospects of China economic stimulus remain a topic of interest for the market. Yesterday China's central bank announced a so-called “mini stimulus”, cutting the reserve requirement ratio (RRR) for rural banks. The government negates the need for a more foreceful stimulus, but many economists believe it is a matter of time before China takes it to support the slowing economy.

Nomura analysts reiterate their forecast for a broader reserve-ratio cut for banks in May or June. “The property sector is slowing down very fast and that's the reason why we're very worried about the Q2 GDP. We think it's going to slow down," they say.  

Additional China stimulus could become a supportive factor for the commodities and the commodity currencies. 


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