The preliminary Caixin/Markit manufacturing PMI for July was softer than expected 48.2. It is the fifth straight month of contraction and more pertinently, it is the lowest reading in 15 months.



The recent correction in the equity market may have indirectly affected the broader investment sentiment. The slide is in contrast to some signs of stabilization given by the recent housing numbers and Q2 GDP report of 7% y/y.



"As such, the overall policy stance is likely to remain accommodative near term, including the possibility of further RRR and interest rate cuts and increased efforts to lift production and infrastructure projects. One key offsetting factor will be concerns over a rise in outflows from lower rates", says Commerzbank.



The State Council said in an opinion piece this morning that it is looking to improve the CNY rate mechanism and possibly widening the CNY trading band. No timeframe or further details were provided. The current band is +/-2% around the daily fix.



The potential change comes as policy makers face increasing pressure to stimulate growth given sluggish domestic investment, weak external demand, and an increasingly uncompetitive CNY. USD-CNY is holding steady despite the news, at around 6.2095 which is 1.5% above today's fix.



Separately, IMF spokesman Gerry Rice said yesterday that the final decision on CNY's inclusion in the SDR basket could be announced by November. He reiterated this will rest upon "a well-defined set of criteria". This includes an emphasis on longer-term efforts to liberalize and develop capital markets and not just on short-term market movements.