September is starting out in the same tone as August; namely weak Chinese data prompting concerns over global growth and sharply falling stock markets.
- FTSE plunges after recovering half of post-China currency devaluation losses
- China manufacturing slowdown hits stocks, oil and Aussie dollar
- IMF Chief Lagarde warns of China spill over
- Europe, UK and USA manufacturing PMIs all slow in August
UK
The FTSE 100 had recovered half of its losses since China devalued its currency but the bounce that took place in just four days looks like it has ran out of steam on day five.
Every sector was red on FTSE in early trading with utilities down the least, offering a modicum of a safe-haven. Friday’s successful launch of the rocket carrying the Global Xpress satellite meant Inmarsat (LONDON:ISA) was the only stock trading higher. China’s poor manufacturing PMI data meant basic resources were a drag with Glencore (LONDON:GLEN) again a standout poor performer.
Government and private data show Chinese manufacturing in contraction while private data suggests services could be headed quickly in the same direction. A slowdown in services is especially tricky for Chinese authorities who are eyeing a long-term switch in the economy towards domestic consumption.
Europe
Soft manufacturing survey data at home only added to the woes of European stock markets after the fastest pace of contraction in manufacturing in three years was reported in China.
IMF Chief Chirstine Lagarde hit a nerve by suggesting the Chinese economy could get “bumpy”. Ms Lagarde’s forecast is arguably a little late coming but China is the central fear right now so markets paid attention.
The German DAX and French CAC were both off by more than 2% for most of the trading session.
The manufacturing PMI for the Euro Area only slipped back by 0.1%, mainly because improvement in Germany concealed weakness in France and Italy and to a lesser extent Spain. Still, an unexpected fall in Eurozone unemployment shows that the economy is still showing overall improvement.
Weakness in European stock markets reflects an understanding that despite recent China-induced volatility highlighted by IMF Chief Lagarde, the European Central Bank is unlikely to ease policy further at this week’s meeting.
US
More weak Chinese data has hit US stocks right between the eyes just as they were showing signs of recovery from China’s currency devaluation.
A lot of the sell-off is emotional following the China data which tells a story already well known of a slowing Chinese economy. One of the more direct impacts of the weak China data was through oil prices which ended their recent winning streak on Tuesday, meaning the energy sector wasn’t able to carry the market higher.
The Dow Jones and S&P 500 opened sharply lower on Tuesday on the back of the weak China data before US ISM manufacturing for August slowed to its lowest in 2 years.
FX
The dollar was mostly lower on Tuesday in line with the weakest ISM manufacturing data in two years. The Japanese yen saw the biggest gains on renewed safe-haven flows while the China-dependent Australian dollar was the biggest faller in the G10.
The unexpected drop in business sentiment according to PMI data sent the British pound lower against the euro but it remained steady against the US dollar.
The euro showed some resilience after its recent sell-off as an improvement in German manufacturing took the edge off weaker than expected PMI data for the Eurozone.
The Australian dollar fell back towards 6 ½ year lows and the 0.70 psychological level versus the dollar on expectation of slowing demand for its commodities exported to China.
Commodities
After leaping to its highest in a month, crude oil slipped back on the prospect of lower demand in China. Given the speed of the ascent it’s perhaps not surprising there is some nervousness heading into psychological $50 per barrel in WTI and $55 in Brent crude. Downside in oil could be cushioned by an emergency OPEC meeting but on the flipside if the meeting doesn’t take place, we could be right back at the lows in a matter of days.
Plunging stock markets saw a flight to safety into gold but base metals were weaker on the prospect of slowing demand from China.
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