China’s Ratingdog Services Purchasing Managers’ Index (PMI) was 52.1 in March. This was below the forecast of 53.7.
A PMI reading above 50 indicates growth in the services sector. The March result remained above 50 despite missing expectations.
Implications For Domestic Demand
This miss on the services PMI signals that China’s domestic recovery is not as robust as we had priced in for the post-holiday period. While still in expansionary territory, the slowing momentum is a concern and challenges the optimistic narrative. We must now question the strength of consumer demand heading into the second quarter.
The data increases the probability of the People’s Bank of China introducing more easing measures to support growth. This policy divergence with a still-cautious U.S. Federal Reserve strengthens the case for a weaker yuan. We should consider positioning for further downside in CNH, as the USD/CNH pair could test the 7.35 level we saw it struggle with during periods in 2025.
For commodities, this is a bearish signal, particularly for crude oil and copper, where China’s consumption is critical. Considering China’s crude imports averaged over 11.5 million barrels per day in the final quarter of 2025, even a small dip in demand will impact global prices. We should be cautious about long positions in industrial commodities over the next few weeks.
In the equity space, we are now less confident in consumer discretionary and travel-related stocks listed in Hong Kong and the mainland. The Hang Seng Index showed signs of topping out near 17,000 recently, and this data provides a catalyst for a pullback. We are therefore looking at protective put options on China-focused ETFs, as corporate earnings estimates for the second quarter may now be at risk.
