At this point, it has become very clear to all that global economic activity has slowed down measurably. The question of course is what is already being discounted in the market. We mentioned yesterday the disaster that is the Shanghai Composite's performance this year (which was down yet another 2.1% overnight) so some form of slowdown has obviously been priced in. As for Europe, well they are dealing with fish much bigger than economic slowdown.
Overnight we have more information via Purchasing Managers index readings in China and Europe (we'll focus on Germany). Both continue to show readings below 50, which signal contraction – but both are 'stabilizing' at levels seen in recent month rather then falling further. However 'new orders' in Germany remain troubling at quite depressed levels.
First the 'flash' (i.e. prelim) data for China via Marketwatch
- Chinese manufacturing activity extended its decline in December, as production at factories and the volume of new orders generated eased from the previous month, according to the preliminary reading of an HSBC survey, released Thursday.
- HSBC’s so-called “flash” Purchasing Managers’ Index for the month printed at 49, staying below the threshold of 50 that separates expansion and contraction. The measure was, however, not as bad as November’s final PMI reading of 47.7, implying manufacturing activity was cooling at a slower rate than in October.
- HSBC said that while it’s good news that the pace of slowdown has stabilized in December, partly in response to the People’s Bank of China’s 0.5 percentage point reduction in major banks’ reserve requirements, the bad news was that domestic demand remained weak in the mainland Chinese economy.
- “China’s economy still faces notable downside risks from slowing exports and the further weakening of property-market activity that is yet to come,” said Qu Hongbin, co-head of Asian economics research at HSBC.
- The flash PMI number is based on the responses of 85% to 90% of the total respondents in a survey.
Meanwhile over in Europe via Reuters:
- German manufacturing contracted for a third straight month in December and looked unlikely to provide a lift to Europe's largest economy soon as new orders continued to dry up, a survey showed on Thursday. The purchasing managers' index for the sector by Markit showed a slight improvement, edging up to 48.1 from 47.9 in November, but it remained well below the 50 mark separating growth from contraction.
- A forward-looking sub-index tracking new orders added to the downbeat picture for the months ahead, rising only slightly to 43.9 from 43.2 in what marked another strong contraction.
- "Incoming new orders in manufacturing, and exports, are still falling at a very steep pace," said Chris Williamson at Markit. "Much steeper than the rate of decline in output suggests is necessary at this stage." "What is worrying is that the rate of decline is only being stopped from falling further by companies eating into their backlogs of work," he added, referring to survey details.
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