China Caixin factory PMI surprises to the upside in March, economists cautious

Chinese manufacturing activity bounced back last month, according to one of the most closely-followed surveys of activity in the sector, but economists appeared to be wary of sounding the 'all clear'.

Caixin's factory sector Purchasing Managers' Index rose from a reading of 49.9 for February to 50.8 in March, beating economists' forecast for a reading of 50.0.

March's reading marked the first increase in four months and was the highest level since July 2018, although the survey compiler said it was only consistent with a "marginal pace of improvement".

A sub-index of new orders pointed to growth, Caixin said, and another linked to new export orders improved, while a gauge linked to employment advanced for the first time in over five years.

Commenting on the Caixin PMI, Julian Evans-Pritchard at Capital Economics said: "there is now a decent chance that growth in China may bottom out slightly earlier than we had previously anticipated.

"That said, we still think growth could weaken again in the near-term. The recent trajectory of credit growth still points to a slowdown in the coming months."

For his part, Lee Hardman at MUFG Bank noted how, according to Bloomberg, in years when the Chinese New Year holiday falls entirely in February, there is usually a big jump in the factory PMI in the following March.

Hardman added: "If the tentative improvement is sustained going forward it will provide more support high beta emerging market and commodity-related currencies. Downward pressure on the euro-zone economy and the euro could also ease. However, the sustainability of the pick-up in activity in China remains very much in question at the current juncture."