Global Growth Tensions Reflected in Diverging Data Points

Confirmation of slower growth in China in August triggered further tumbling of global stocks on September 1st. The first of the month is when we get the Purchasing Managers’ Indexes (PMI) from Markit for the previous month for the manufacturing sector for most important economies. In the case of China we also get an official PMI reading. These are some of the timeliest indications of the current pace of economic activity. In China, the government’s PMI fell below 50, the level that separates expansion from contraction, to 49.7, the lowest reading since August 2012. The private Caixin-Markit PMI, at 47.3, was stated to be ‘the quickest deterioration in operating conditions for over six years.’ Weak demand in the markets for goods and factors of production was reported. There was also an unexpected slowdown in service-sector business activity. The services index, at 51.5, while still above 50, fell sharply from July’s 53.8% reading. One reason was slower expansion in the financial sector, probably reflecting the turbulence in China’s stock markets.
The slower growth readings strengthen expectations that China will be ramping up efforts to put a floor under the economic slowdown. Look for both further steps to loosen the still-tight conditions in China’s financial markets and further fiscal stimulus. China’s concerns about the volume of the continuing capital outflows was reflected in reports that the People’s Bank of China (PBOC) will impose a 20% reserve requirement on financial institutions trading FX forwards and that regulators are going after illegal financial transfer activities.

This post was published at FinancialSense on 09/03/2015.