The HSBC Flash China Manufacturing PMI is showing further contraction.
Could worries over China slowing, coupled with renewed jitters in Europe, be the catalyst for the long awaited correction in global equities? That’s how we’re positioned, but recognize it’s a crowded camp. China’s weakening domestic demand will result in further monetary easing by the country’s policymakers, which could also limit the downside for equities.
A pullback in the S&P500 to, say, the 20-day moving average at 1378, or even the 50-day at 1348, would be healthy for the market, in our opinion. It sure doesn’t feel like the market wants to go down, but it also felt like Apple wanted to close over $610 today until it fell $7 in the last half hour of trading to close in the red.
Markit quotes Hongbin Qu, Chief Economist, Co-Head of Asian Economic Research at HSBC on the weak China data,
“Weakening domestic demand continued to weigh on growth, as indicated by a slowdown in new orders which came in at a four-month low. External demand remained in contraction territory, but the decline was at a slower pace, implying that there are no improvements in the demand outlook. More worryingly, employment recorded a new low since March 2009, suggesting slowing manufacturing production was hindering enterprises’ hiring desire. The soft-patch in manufacturing was in line with the recent downside surprise in industrial production growth. Growth momentum could slow down further amid a combination of sluggish export new orders and softening domestic demand. This calls for further easing steps from the Beijing authority.”