Worries about China Rattle Global Equities Again as a New Month Begins
September 1, 2015
A series of bad Chinese purchasing manager survey results were reported on Tuesday.
- The private Caixin composite PMI (formerly compiled by HSBC) slumped 1.4 points to a 78-month low of 48.8 in August amid weak demand.
- The Caixin manufacturing PMI of 47.3 was down from 47.8 in July to a 77-month low of 47.3 in August.
- The Caixin services PMI dropped 2.3 points to 51.5 in August.
- The government-authorized manufacturing PMI dropped below the 50 no change level for the first time since February, printing at 49.7.
- The government-authorized non-manufacturing PMI slid 0.5 points to 53.4, a three-month low.
Beijing officials seemingly have lost control of the world’s second largest economy. The economic and financial market data keep weakening in spite of a series of policy initiatives this year. The latest announced by the central bank today is a reserve requirement imposed on currency forwards to increase the cost of shorting the yuan.
China’s weakness is an immediate problem for surrounding economies. Among other Asian purchasing manager surveys released today,
- Taiwan’s manufacturing PMI dropped 1.0 points to a 35-month low of 46.1.
- Vietnam’s manufacturing PMI reading of 51.3 in August is at a 5-month low and 1.3 points weaker than in July.
- Malaysia’s manufacturing PMI of 47.2 is at a 34-month low.
- South Korea recorded a sub-50 reading again of 47.9, a 4-month high.
- Indonesia’s 48.4 score was above July’s 47.3 but still connoted a significant rate of contraction in manufacturing.
- Japan’s PMI improved 0.5 points to a 7-month high of 51.7, suggesting a moderate expansion. Input inflation fell to a 31-month low, however.
- Australia also recorded a reading of 51.7.
- India’s PMI slid from a 6-month high of 52.7 in July to a 2-month low of 52.3 in August. Orders growth weakened.
DOW futures point to an initial slide of several hundred points.
Share prices fell 1.2% in China, 3.8% in Japan, 2.2% in India and Indonesia, 2.0% in Hong Kong and 2.1% in Australia. Losses so far in Europe amount to 2.6% in Germany, 2.2% in France and Spain, 2.3% in Great Britain, and 1.8% in Italy and Switzerland.
WTI oil fell back below $50 to $48.29 per barrel, but Comex gold is 0.6% firmer at $1,141.85 per troy ounce.
Ten-year sovereign debt yields, down 5 bps in the U.S, 4 basis points in the U.K. and 2 bps in Germany, reflect the new wave of risk aversion.
Dollar movements overnight were diverse, with a 0.9% drop against the yen but a 0.9% rise relative to the Australian dollar. The dollar rose 0.3% against the looie, 0.2% versus the euro and 0.1% vis-a-vis sterling but fell 0.2% against the Swiss franc and 0.1% relative to the Chinese yuan. The kiwi was steady.
Euroland’s manufacturing PMI fell to a 3-month low and was revised 0.1 point below the preliminary indication to 52.3. Ireland’s 53.6 reading was at an 18-month low. The French and Italian readings of 48.3 and 53.8 were 4-month lows. Spain’s 50.5 represents a 10-month low, Austria’s 50.5 a 3-month trough and the Dutch score of 53.9, though the best of the bunch, a 5-month low. The Greek PMI, which has dived 16.7 points in July, rebounded to a 2-month high of 39.1, and Germany’s 53.3 reading was at a 16-month high, representing the main bright spot.
The British manufacturing PMI fell 0.4 points to a 2-month low of 51.5 in August and was well below the recent mean reading of 54.2.
The Swiss PMI improved to an 8-month high of 52.2 from a 3-month low in July of 48.7.
In other European PMI survey results reported today,
- Sweden’s PMI reading of 53.2 was 2.0 points lower than in July and at a 2-month low.
- In Norway, hit hard by weak oil, the manufacturing PMI sank 2.1 points to 43.3.
- Hungary’s PMI rose 0.8 points to a 2-month high of 50.7.
- The Czech PMI fell from a 56-month high in July of 57.5 to a 3-month low in August of 56.6.
- Poland’s 51.1 reading constitutes an 11-month low and was a whopping 3.4 points lower than in July.
- Hit by higher inflation caused by ruble weakness, Russia’s manufacturing PMI slipped another 0.4 points to a 3-month low of 47.9.
- The Turkish PMI dropped 0.8 points and below the 50 threshold to 49.3, but input price inflation was at an 18-month high.
Japanese business investment last quarter posted less-than-assumed growth of 56.6%. Profits and sales rose 23.8% and 1.1%. Japanese motor vehicle sales were 2.3% greater than a year earlier in August after a 1.3% drop posted in July.
Eurozone unemployment fell below 11.0% in July for the first time since February 2012 to 10.9% following three straight readings of 11.1% and 11.6% in July 2014.
German unemployment remained at 6.4% in August, the level since April. But the level of jobs fell 6K after rising 8K in the previous month. On-year employment growth of 0.4% in 2Q was likewise below that of 0.6% in the first quarter of 2015.
Italian GDP growth last quarter got revised upward to 0.3% from 1Q and 0.7% on year. June saw unemployment drop to 12.0%.
The Reserve Bank of Australia retained a record low 2.0% official cash rate as analysts had predicted. There were two 25-bp cuts in the first half of the year.
Australia released current account and building permit data. The current account deficit widened to A$ 19.0 billion in 2Q from A$ 13.5 billion in 1Q but was substantially smaller than a year earlier. Building approvals rebounded 4.2% in July from an even larger drop in June and were 13.4% greater than in July 2014.
Thai consumer prices fell 1.2% in the twelve months to August. In the same span South Korean consumer prices increased 0.7%, and Indonesian inflation eased marginally to 7.18%.
The U.S. manufacturing PMI, motor vehicle sales and construction spending data get released today. Boston Fed President Rosengren, a dove, speaks publicly later in the day.
Copyright 2015, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian current account, eurozone unemployment, Manufacturing PMIs