The most frequently asked question in my meetings with accounts in recent weeks has been: “What’s your take on China’s economy?” I have been pessimistic on China’s economy for well over a year, mostly because of the producer price deflation. However, pessimism may be too widespread and excessive now.
Since the yuan was devalued on August 11, the US stock market has been much more sensitive to any indicator coming out of China. The latest one, released on 9/23 by Markit, showed that September’s flash M-PMI fell to 47.0, with the output component down to 45.7--both at 78-month lows.
Commodity prices remain under downward pressure, confirming the weakness in China’s factory sector. Also confirming China’s weakness are production indexes among its major trading partners. Industrial production indexes are falling in both Taiwan and Singapore, with the average of the two down 8.3% over the past five months through August. Brazil’s factory output is down 8.3% y/y to the lowest since May 2009.
Today's Morning Briefing: What’s the Matter? (1) Just another normal correction? (2) An ugly technical picture. (3) More Death Crosses. (4) Dow Theory looking bearish. (5) Fallen leaders. (6) Advance/decline lines in retreat. (7) Bearish sentiment, volatility, and junk spreads all elevated. (8) Three FAQs while waiting for Godot. (9) China’s canaries may be Brazil, Taiwan, and Singapore. (10) Draghi is waiting for lenders to lend more. (11) Abenomics 2.0 has three new darts. (12) US looking good, regional business surveys aside. (13) Resigned to more congressional partisanship. (14) “Pawn Sacrifice” (+ + +). (More for subscribers.)
