Now we have the US and Chinese economies definitely slowing.
Figures out yesterday confirm that the slowdown in Chinese manufacturing is continuing.
The news came hours after the US Federal Reserve cut its forecasts for US economic growth for this year and next, raised the jobless estimate and expressed concern about inflation.
In doing so, the Fed however did say that it saw US growth this year at 2.7% to 2.9%, a lot faster than the 1.8% annual rate in the first quarter of the year, which implies a solid rebound in the back half of the year, hopefully.
The Fed’s statement and then the weak flash surveys sent markets down around the world, with Wall Street suffering big losses, then staging a small recovery.
As well major industrial countries surprised by announcing the release of 60 million barrels of oil from their reserves, which saw oil prices drop 5% and more, and the price of gold fall, as well as currencies like the Australian dollar.
And in Europe the Markit flash survey for European manufacturing wasn’t good news as well.
It showed private-sector growth across the 17-nation euro zone in June at its weakest since October 2009, led by a sharp slowdown in manufacturing activity, according to preliminary purchasing managers’ index.
The Markit euro-zone PMI composite index fell to 53.6 in June, a 20-month low, from 55.8 in May, well below market forecasts.
Manufacturing PMI fell to an 18-month low of 52.0 from 54.6 in May. Services PMI declined to a six-month low of 54.2 from 56.0 in May.
"The euro area’s economic growth surge has lost momentum at a worrying rate in the past two months," said Chris Williamson, chief economist at Markit in media reports overnight.
"While the average PMI reading for the second quarter as a whole suggests that the economy grew by around 0.6%, down from 0.8% in the first quarter, the reading for June was consistent with a quarterly growth run rate of just 0.4%," he said.
In China the HSBC Markit Economics flash Purchasing Managers’ Index (PMI) eased to 50.1 in June, from 51.6 in May.
(Remember above 50 it’s expansionary, below 50 it’s contractionary.)
That’s the slowest rate of expansion in 11 months, according to preliminary results from the survey.
The final results will be out a week today, along with the official government survey.
But economists say the index could fall under 50 in the next quarter if the predictions of blackouts and power shortages eventuate.
The index last dipped under 50 a year ago next month, but then bounced to around 55. So remember that when you start seeing stories about how China could be headed for a hard economic landing.
The news didn’t worry the Shanghai market, it was up 1.5% at the close yesterday, one of the biggest daily rises this year.
But it is still down more than 11% so far this year, matching the downturn in activity and the rise in inflation and tighter monetary policy.
HSBC economists said the new export orders component of the survey indicated contraction at an accelerating rate, while new orders remained expansionary, although at a slower rate.
Meanwhile the employment subindex showed conditions were now contracting, reversing from an expansion.
HSBC economist Hongbin Qu said in the statement the result shows “demand is cooling, thanks to the effect of tightening measures and the slackness in external markets. This, plus the ongoing inventory destocking, has led to a slowdown in output growth.”
However, he added that so far there was no sign China was headed for a hard landing, as the data suggested activity consistent with a 13% annual growth in industrial production (13.3% in May).
The flash PMI is compiled using 85% to 90% of total PMI responses and is intended to give an early reading of the final survey sample.
Figures issued earlier this week suggest that steel output in the first 20 days of the month was a touch higher than in May when the monthly figure topped 60 million tonnes for the first time ever.
But output is likely to weaken in the next quarter because of weakening demand and the impact of power shortages which could have been a factor in the HSBC survey outcome.
News of the continuing slowdown in this survey comes as the tight monetary policy continues to bite in China.
Media reports said that China’s most important gauge of short-term funding costs hit a three-year high this week.
The seven-day repurchase, or repo, rate, hit 8.9% on Wednesday, up more than 500 basis points from its average in May.
Economists say the seven-day government bond repurchase rate is notoriously volatile and expect it to fall after a month-end cash shortage eases.
But they say the sharp rise clearly shows the tightness of money in China after four rate rises since last October and at least nine increases in the reserve asset ratio for banks.
Analysts said regional and municipal banks are being hit hard, because they are net borrowers in the interbank market.
That in turn threatens to make life more difficult for small and medium-sized enterprises, which are already strapped for cash and rely heavily on smaller banks for their borrowing needs.
The immediate cause of the rise in repo rates was last week’s increase in the reserve asset ratio, the sixth of 2011, and which went into effect on Monday.
That drained cash from the market, sending the repo r
