So bad it’s …

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The August Manufacturing PMI for China printed at 49.2pts, down 0.9pts from July and 0.8pts below the median estimate. The employment index fell 40pips, to 49.5, and the new orders index fell 30pips to 48.7pts. Export orders remained weak, holding at 46.6.

Predictably, this has led to a chorus of “so bad it’s good” from the usual suspects. Stimulus is a political decision, and I cannot see the Chinese political classes coalescing around a plan until after the leadership transition is complete – so I’d guess that we won’t see any major push until 2013 (if we do at all).

Until then, I expect that the recession that’s presently spreading out from Europe will continue to creep.

I had been thinking that China would have responded to the modest easing that’s occurred so far. It seems that’s not the case.

With every indication being that the Fed is going to ease monetary policy at their September meeting, the risk is that the AUD appreciates and that this brings the RBA back into the frame this year.

My current ‘roadmap’ is that the Australian unemployment rate will begin to push up toward 5.5% toward the end of this year, and that as this occurs the RBA will re-engage their easing bias and cut in H1’13 – however this data swings the pendulum back a little toward Q4’12.