Asian shares are trading sharply lower on the first trading day of 2016, the U.S. dollar is up against Asian currencies, and the yield on the 10 year U.S. Treasury is dropping after 2 weak economic reports from China shows continual weakness in the Chinese manufacturing sector and points to lingering contraction.
Over the week-end, China’s National Bureau of Statistics reported that December’s PMI remained in contraction for the 5th consecutive month and was 49.7, barely above 49.6 in November, a 3 year low, which comes after Beijing has already made 6 interest rate cuts in 2015 to help offset the slowing Chinese economy.
A PMI reading below 50 designates contraction.
On Sunday another manufacturing report from Markit (Caixin China General Manufacturing PMI) measuring manufacturing activity across small to medium sized companies showed China’s PMI reading in December was 48.2 in December, down from 48.6 in November.
The downturn marks the seventh time in the past eight months that production has fallen, and contrasts with stabilization in November.
“The Caixin China General Manufacturing PMI for December is 48.2, down 0.4 points from the reading for November. This shows that the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening” said Dr. He Fan, Chief Economist at Caixin Insight Group in a statement.
“More fluctuations in global markets are expected now that the U.S. Federal Reserve has started raising rates. The government needs to pay more attention to external risk factors in the short-term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff ” Dr. He Fan added.
Later on Monday, euro area PMI is due to be released from Markit followed by manufacturing data in the U.S. with the ISM Index for December.
Economists from briefing.com forecast a decline in the ISM Index to 47.0 from 48.6 in November.