A manufacturing report released in China on Sunday showed the economy continuing to contract, as Asian equities reacted to the news with a feeble open and futures markets in Europe and the US initially mirrored this downwards movement. One of the biggest manufacturers in the world, a slowing Chinese economy negatively impacts prices of commodities normally used to make goods and the emerging markets reliant on Chinese demand for their raw materials. For the most part, China’s economy has been steady over the last quarter with the exception of the last few months of PMI reports that illustrate an economy that is very slowly contracting according to the figures. Each month prints a few decimal points below the previous, and all reports are below the break-even 50 threshold that comprises the line between contraction and expansion. Extensive Central Bank intervention has not been enough to push inclines in even a non-manufacturing index, with the latest purchasing manager’s data showing a 0.3 monthly slide.
The multitude of interventions, which have consisted of numerous edits to monetary policy including the slashing of reserve ratio requirements and several rate cuts have brought about an increase in nonperforming loans. Large lenders that have made the mistake of not trimming down on manufacturing exposure are experiencing a shortage of capital, and create troubles for small businesses as banks become more hesitant to open new lines of credit. These events lead analysts to believe that more monetary policy changes will soon be installed in order for the last quarterly report of 2015 to not be disappointing. The government hopes that recently positive figures in construction, which experienced 5.50% growth in October, will prop up metrics for the close of 2015. The new infrastructure may serve to push final PMI measurements past the all-important 50 mark, but is unlikely to turn around the fundamental problems plaguing the economy.
Poor Manufacturing Maintains Chinese Pessimism
Market Trends - 02/11/2015