What an ugly day. China stocks are being absolutely crushed today. The news out of China is a “worst case scenario”.
Today is likely to be capitulation day, and I would expect something better next week. September can be an ugly month, and its living up to its reputation.
In over news night there were two items out of China that have fund managers just blowing out of equities today. There was news China’s manufacturing sector slowed for the third month in a row. The HSBC Purchasing Manager’s index for September- and early forecast, showed a reading of 49.9- anything below 50 suggests contraction.
I don’t believe this was a big surprise to the world as this is a measure of exports, and the global slow down is creating less demand.
However, resilient and growing domestic demand is keeping inflation high. Thursday’s data showed rising input costs, which suggests inflation is still strong.
As I said- the perfect storm. You have manufacturing slowing, but you’re not getting the much needed corresponding drop in inflation. This double whammy has the markets reeling.
In overnight trading:
- The Shanghai A shares were down 2.78%, and the B shares down 2.58%, giving back all the previous day’s huge gains.
- The IMF cut its forecast for China growth for this year and next. This year was cut to 9.5%, and next year was cut to 9%.
- Economists in China are still forecasting waning inflation.