Global Economy Set for Weak Second Half
The World economy started H2 2015 in an ominous slowdown, as business activity in the eurozone was weaker than expected and China’s vast factory sector appeared to be contracting at the fastest pace in 15 months in July.
The data comes just months after the European Central Bank embarked on a misguided 60 billion euro a month bond-buying program and as Beijing “said” it would allow the RMB to fluctuate more widely within its trading band as a way to support trade.
Markit’s purchasing managers’ indexes (PMI) are one of the earliest monthly economic indicators and could dampen hopes that ECB bond-buying and the tumbling euro are boosting growth and driving inflation higher in Europe.
Expectations of a U.S. rate rise this year have already dented investor appetite for high-yielding but risky emerging market assets. The latest Reuters poll found a majority of analysts now believe the Federal Reserve will hike in September.
Greece has accepted the conditions imposed on it by its international lenders, and approved a second package of reforms required to start talks on a financial rescue deal, Greece’s bankruptcy meant July was a turbulent month for the euro zone.
The EURUSD has sunk more than 9 percent since the start of the year, hit by the ECB’s massive cash injection and fears a Greek exit from the bloc would bring the whole union crashing down. That has made the bloc’s goods cheaper abroad but done little for demand.
Markit’s Composite Flash PMI, based on surveys of thousands of companies and seen as a good guide to growth, fell to 53.7 this month from June’s four-year high of 54.2. A Reuters poll had predicted a more modest dip to 54.0.
The headline index has nevertheless now been above the 50 level that separates growth from contraction since mid-2013.
Markit said the data provisionally pointed to third-quarter growth of 0.4 percent, slightly weaker than the 0.5 percent predicted in a Reuters poll published on Thursday. Second-quarter growth is forecast at 0.4 percent. [ECILT/EU]
A corresponding survey due later from the United States is expected to show manufacturers increased activity at the same modest pace as last month.
CHINA FADES
Faltering demand in China, the world’s largest commodity buyer, piled the pressure on resource prices, sending gold to a five-year low and copper to a six-year trough.
It also added to the woes of emerging market nations already struggling with the risk of a rise in U.S. interest rates later this year.
The flash Caixin/Markit China PMI dropped to 48.2, the lowest reading since April last year and the fifth straight month under 50.
China is Australia’s biggest export market and investors use the currency as a liquid proxy for risk in the Asian giant.
The survey of executives in over 420 Chinese manufacturing firms found output, new orders and export orders all decreased.
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