China’s Factory Slump Sparks New Stimulus Calls Despite US Truce

Core Insights - China's factory activity has experienced its longest decline in over nine years, with the official manufacturing purchasing managers' index dropping to 49 in October, indicating a significant contraction in activity just before a leaders' meeting aimed at stabilizing US-China relations [1][2] - The decline in new orders was the most substantial since 2023, attributed to trade barriers and weak domestic sentiment, highlighting the need for policy support to address economic weaknesses [1][2] Economic Indicators - The output sub-index fell below the critical 50 mark for the first time since April, signaling a contraction in manufacturing output, while the new export order sub-index recorded its worst performance since the imposition of tariffs [4] - The non-manufacturing measure in construction and services slightly increased to 50.1, suggesting that the services sector may have benefited from the National Day holidays, contrasting with the manufacturing sector's struggles [6] Policy and Market Reactions - Economists suggest that despite the weak data, additional stimulus measures in the fourth quarter appear unlikely due to an improving external environment and progress towards growth targets, reducing the urgency for further easing [5] - Some Chinese exporters expressed cautious optimism regarding the recent trade deal with the US, which may boost orders, although they remain wary of relying solely on access to the US market due to past experiences with trade tensions [6]