Judging by the market reaction in Asia yesterday, the news from the ‘flash’ report on the health of Chinese manufacturing was terrible – a 78 month low of 47.0, down from the ‘flash’ report of 47.1% for August and the final for last month of 47.3.
Markets across Asia fell sharply as a result with big losses in Japan, Hong Kong, Shanghai and Australia, but markets in Europe, while those in the US couldn’t make their mind up and eventually closed in the red with small losses.
The Aussie dollar fell back under 70 US cents as the greenback rose and emerging currencies such as the Brazilian real and Mexican peso were sold off. Our market will start with a small gain, but how long lasting that will be remains to be seen
And oil prices fell sharply, down 3.5% after an early rally, which helped the stockmarket lower. But gold rose around $US5 an ounce to $US1,130 in New York.
In fact US stocks closed lower for a second day after a morning rally in oil fell apart and crude prices settled below $US45 a barrel. The Dow eased 50.58 points, or 0.3% lower, to close at 16,279.89. The S&P 500 Index fell 3.98 points, or 0.2%, to close at 1,938.76, and the Nasdaq Composite also slid 3.98 points, or less than 0.1%, to finish at 4,752.74.
In Europe, VW shares rose 7% for the first gain this week, trimming the losses so far to around 26%. That was after the company’s CEO, Martin Winterkorn quit to take responsibility for the US emissions scandal.
While the Tokyo market was again closed for a holiday, the Shanghai Composite Index closed down 2.2%, and the Hang Seng Index fell 2.3% and Chinese firms listed in Hong Kong lost 3.5%.
In Australia, the ASX 200 ended at a two year low yesterday, falling below 5,000 for the first time since July 2013, led by follow on selling in the miners after the big sell off in London the night before.
The ASX 200 plunged 2.1%, or 105.4 points, to 4998.1, while the All Ordinaries fell 98.3 points to close at 5032.4, shaving about $30 billion off the market’s value.
The weaker-than-expected flash result of the Caixin/Markit survey for Chinese manufacturing added to concerns in Asia about the health of China’s economy.
It came a day after the Asian Development Bank cut its GDP forecasts for Asia (especially China) for this year and next.
Capital International China economist Julian Evans-Pritchard said. "That said, Caixin’s manufacturing PMI has not provided a particularly good reading of the health of the broader economy in recent months and so it is still too early to tell whether or not the Chinese economy has stumbled in September."
The broader activity data currently don’t point to a deepening economic crisis, he said yesterday. "Indeed, industrial output growth has recently held up much better than the PMI appears to indicate," he added.
"While the weaker-than-expected PMI is clearly disappointing, it is not enough to lead us to change our view that the current pessimism over China is overdone."
The view was echoed by HSBC economist Julia Wang who noted the soft PMI "mainly reflected weak external demand". "As China has rolled out a slew of pro-growth measures in the past months, China’s domestic demand may have stabilised."
She said the Caixin PMI covers firms with more exposure to exports, and indicators in coming months may show that the economy is not as bad as the flash PMI indicates.
