• 14th month straight in expmanison
• Export sales stagnated
• employment continued to rise
• easing cost pressures

• Overall, the manufacturing sector continued to stably expand in June, despite the impact of the pandemic. Both demand and supply in the sector remained stable, as did external demand, showing the momentum of economic recovery still remained in the post-epidemic period. The job market continued to improve and businesses were highly optimistic, with the measure for future output expectations in June higher than the longterm average. Inflationary pressures eased somewhat, but manufacturing enterprises’ purchasing prices and factory-gate prices still rose. The shortage of raw materials continued in some regions. The manufacturing sector has gradually returned to normal. In the second half of this year, the low base effect from last year will weaken. Inflationary pressure, coupled with the economic slowdown, is still a serious challenge for China.

• softer expansions in both production and new orders
• the headline Manufacturing PMI was at its lowest reading since February
• “Manufacturers continued to note concern regarding ongoing supply chain disruption, which has induced sharp rises in the price of raw materials amid severe shortages. Cost burdens faced by businesses rose at the sharpest pace since March 2011, which has partially translated to higher charges for clients to cover margins. 
• “That said, Japanese manufacturers commented that the degree of optimism regarding the outlook for output over the coming 12 months strengthened in June. Confidence about the outlook reached the highest level since the series began in July 2012, as hopes of an end to the pandemic gathered pace. This is broadly in line with the IHS Markit forecast for industrial production to grow 8.8% in 2021, though this does not fully recoup losses from the pandemic.”

• Manufacturing expected 50.8, prior 51.0
• Non-manufacturing expected 52.7, prior 55.2

China saw a resurgent wave of COVID-19 infections in the major industrial province of Guangdong. Morgan Stanley preview comments:

• key drag would be COVID disruption on Shenzhen ports, accounting for about 7% of national exports
• has led to slower container throughput growth
• could weigh down national exports by 3-4%
• and thus drag the pace of production in mid- to downstream sectors
• construction activity likely slowed amid higher raw material prices

• expected -2.4% m/m, prior +2.9%

+22.0% y/y

• expected +20% y/y, prior +15.8%

Japanese manufacturers forecast:

• June industrial output at +9.1% m/m
• July at -1.4% m/m

• Shadow banking assets as a share of nominal GDP fell in Q1 2021 to the lowest in eight years
• Economy-wide leverage to stabilize as authorities aim for a credit growth rate that matches nominal GDP growth

• Moody’s measure of the economy-wide leverage ratio declined in the first quarter of 2021 
• The ratio is set to decline and stabilize in 2021 amid the steady economic recovery and a less accommodative credit environment, as the Chinese government targets a rate of credit growth that matches nominal GDP growth.

• Core CPI +1.0% vs +0.9% y/y prelim

• sees continued normalization of policy at next meeting
• sees another policy adjustment of the same magnitude at the next meeting
• deteriorating inflation expectations may require a more forceful reduction of monetary stimulus
• base-case scenario is for normalisation of policy towards neutral rate
• a rate hike at next meeting depends on the evolution of economic activity, the balance of risks, inflation expectations
• future monetary policy steps may be adjusted to ensure compliance with inflation goals
• accompanying current inflation shocks and their potential secondary effects
• adjustment towards neutral rate necessary to “mitigate the dissemination of the temporary shocks to inflation”
• decision was unanimous
• persistence of inflationary pressure more intense than expected
• outlook for electricity rates keeping inflation under pressure in the short run