Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While futures may make a U-turn on the jobs data at 8:30 AM they have been weak all morning as economic data from China and Europe overnight was uninspiring. The action this morning makes yesterday's late day surge all the more frustrating as it was another day stop losses for one side or the other (in this case shorts) were easily triggered. If nothing changes in the next few hours the lows of a few weeks ago will be in play today. Also keep in mind U.S. manufacturing ISM is released at 10 AM but the 2 data points today, even if positive, will just be a respite from a global economic and structural (European) malaise. U.S. treasuries continue to surge, and in many way, are doing what QE is supposed to do.
First in China:
- China's slowdown worsened in May as its factories saw a further deterioration in demand at home and abroad, dealing a new blow to a global economy struggling with a sharp downturn in Europe and a faltering recovery in the United States. "What's really worrying is new orders have started to shrink and inventories have started to build up at an unusually fast pace," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. "Growth in Q2 is likely to slow, probably below 7.5 percent year-on-year. That puts the annual growth target at risk and the risks continue to increase because the external environment is weakening."
- China's official purchasing managers' index – covering China's biggest, mainly state-backed firms – fell more than expected to 50.4 in May, the weakest reading this year and down from April's 13-month high, with output at its lowest since November 2011.
- The separate HSBC China manufacturing PMI, tracking smaller private sector firms, retreated to 48.4 from 49.3 in April – its seventh straight month below the 50-mark that demarcates expansion from contraction – with the employment sub-index falling to 48.1, its lowest level since March 2009.
Over to Britain:
- Britain's manufacturing sector shrank at its fastest pace in three years in May as orders nosedived, dealing a body-blow to hopes of an early end to recession and raising the chances that the Bank of England will inject more stimulus to boost growth. "This is a collapse, this is a huge decline. We're still a little bit above the lows we hit in the depths of the 2009 recession, but we're heading that way sharply," said Ross Walker, an economist at RBS.
- The headline activity index plunged to 45.9 in May from a downwardly revised 50.2 in April, its lowest reading since May 2009 and the second-steepest fall in the survey's 20-year history. Analysts had expected a more modest dip below the 50-point mark that separates contraction from expansion, to 49.8.
- Markit said the sharp decline in activity reflected the first contraction in manufacturing output in six months and the steepest decline in new orders since March 2009.
Last in Europe aka Germany
- Germany's manufacturing sector contracted at the fastest pace for almost three years in May, albeit more slowly than initially thought, as flagging demand from the euro zone and further afield challenges the country's resilience to the debt crisis. Markit's manufacturing Purchasing Managers' Index (PMI) fell to 45.2 in May from 46.2 in April, but was just above a preliminary estimate of 45.0, final data showed on Friday.
- The figure marked the fastest decline in the sector since June 2009. "Germany's manufacturing output continued to lurch downwards in May, with the resilience of the first quarter now giving way to the steepest drop in production levels for almost three years," Markit's Tim Moore said in a statement. The new business index fell sharply to 43.8 in May from 44.9 a month earlier, contracting for the 11th month in a row and new export orders declined at the fastest rate since November 2011.
France was at 44.7 down from 46.9.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
