China’s July CFLP composite PMI fell 1.3 points to 49.3, its lowest level since December 2022, and both the manufacturing and non-manufacturing indices moved below the 50 threshold, pointing to a broad slowdown across sectors. The manufacturing PMI dropped 1.1 points to 49.2 versus a Bloomberg estimate of 50.1 and June’s 50.3; within the survey, production eased to 49.9 from 51.4, while new orders slid to 48.5 from 51.2 and new export orders to 49.6 from 50.1. Employment was the exception, rising to 49.0 from 48.5 and reaching its highest reading in 40 months.
At the 30 July Politburo meeting, officials pledged “incremental” measures, stronger counter-cyclical adjustments, steps to expand domestic demand and optimise supply, and action against “involutionary” competition. The statement also pointed to faster fiscal spending and bond fund deployment to support key projects, new infrastructure and social initiatives, alongside flexible use of monetary tools. Policy focus remains on growth after 2Q26 GDP growth came in below the official 4.5%–5.0% target range, while the PBOC’s benchmark seven-day reverse repo rate is expected to stay at 1.40% through 2026.
Currency and Equity Derivatives Outlook
With China’s composite PMI falling to 49.3 in July, we expect the Yuan to face steady downward pressure in the coming weeks. Derivative traders should consider buying USD/CNH call options to capitalize on this currency weakness. Historically, when domestic demand softens and export orders contract to 49.6, the currency tends to weaken as a natural economic stabilizer.
We also suggest focusing on equity derivatives as the manufacturing PMI’s drop to 49.2 signals immediate pain for Chinese stock indices. Purchasing implied volatility or buying put options on the CSI 300 index can protect portfolios from sudden market sell-offs. This strategy leverages the gap between weak economic data and the delayed impact of any promised fiscal stimulus.
Interest Rate Market Strategy
In the interest rate market, we expect government bond yields to stay suppressed because the central bank will likely hold key rates at 1.40% through the year. Long positions in bond futures remain a highly viable defensive trade as economic growth undershoots target ranges. Traders can use these contracts to lock in yields before the government ramps up its local bond issuance for new infrastructure.
