China’s service sector expanded in September, with the Services Purchasing Managers’ Index (PMI) rising to 52.9. This was above the anticipated figure of 52.3, indicating continued growth in the service industry.
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Today’s services PMI data from China is a positive signal, showing expansion that beat market expectations. This suggests that domestic demand in the country could be finally gaining solid momentum. We should view this as a sign that earlier government support measures might be translating into real economic activity.
Market Implications
We should be looking for strength in commodity-linked currencies, especially the Australian dollar. The AUD/USD has historically been sensitive to Chinese economic surprises, and after a period of choppy trading through 2024, this could provide a catalyst for a move higher. Traders could consider buying near-term call options to position for potential upside in the AUD.
This report also provides a firm base for industrial commodities like copper. Given that China’s consumption accounts for more than half of global copper demand, this stronger service sector activity will ease fears of a slowdown. We believe this supports copper prices holding above the $9,500 per tonne level that acted as resistance earlier this year.
For equities, this could spark renewed interest in Chinese stocks that have been largely overlooked. We recall how the Hang Seng index struggled to find direction throughout much of 2024, but today’s data could encourage traders to sell put options on major Chinese ETFs. This strategy expresses the view that downside is now more limited.
