With Steel output down 3.4% YoY (worst in over 2 years) and Cement output down 4% YoY (worst in 7 years) it should not be entirely surprising that the Final December HSBC Manufacturing PMI for China slumped to a contraction-implied 49.6 (a small blip up from the 49.5 preliminary print) and down from 50.0 in the previous month. This is the first contraction since April 2014 after the credit-impulse of Q2 comes back to bit in the hangover. New orders fell for the first time since April but the employment sub-index contracted again for the 14th months in a row. Market reaction is modest for now, China stocks lower and USDJPY fading.

Lowest Manufacturing PMI in 8 months:

Some of the more disturbing findings in the report:

The weaker PMI reading was partly a result of a renewed fall in new business volumes placed at Chinese manufacturers in December. Though only slight, it was the first reduction in new orders since April. Data suggested that the decline was largely  driven by softer domestic demand

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“The HSBC China Manufacturing PMI fell to 49.6 in the final reading for December, down from 50.0 in November. As seen in the flash reading earlier, domestic demand led the slowdown as new orders contracted for the first time since April 2014. Price contraction deepened. Today's data confirmed the further slowdown in the manufacturing sector towards year end. We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months.”