Official Chinese PMI survey data indicate that growth in China's aggregate economy weakened in October after modest improvements in each of the two previous months, with the data showing a return to contraction in the manufacturing sector and more subdued expansion in the non-manufacturing sector. Today's data suggest that momentum in the Chinese economy's recovery has stalled again despite recent steps to loosen policy and improve liquidity conditions. This may strengthen the case for further policy adjustments in coming weeks.

The headline index for the CFLP manufacturing PMI fell from 50.2 in September to 49.5 in October, below the consensus forecast of 50.2 and indicating contraction in the sector after it had previously indicated expansion for the first time in six months. The CFLP non-manufacturing PMI survey's headline index fell from 51.7 to 50.6, also below the consensus forecast of 51.8. The composite index covering the entire economy fell from 52.0 in September to 50.7 in October, its lowest level so far this year.

Today's data underperformed expectations. The China RPI fell from plus 16 to plus 9 and the RPI-P fell from plus 50 to plus 25, indicating that data are now coming in within and just above market expectations respectively.

The CFLP manufacturing PMI is expected to hold steady and flat at 50.2 in October while the non-manufacturing PMI, which in September improved more than a half point to 51.7, is expected to edge higher to 51.8.

China Federation of Logistics and Purchasing (CFLP) Manufacturing Purchasing Managers Index (PMI) is the monthly survey of about 800 purchasing managers that is conducted jointly by CFLP and National Bureau of Statistics (NBS). The questions focus on the health of the manufacturing sector. The numeric result is a diffusion index. A reading above 50 indicates that manufacturing is growing. A reading below 50 indicates contraction.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures. The CLFP manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices. The survey tends to have a greater impact when it is released prior to the HSBC/Markit manufacturing PMI because the two reports are correlated.