Monday Madness – Weak Chinese Data Spurs Stimulus Hopes

Chinese manufacturing keeps contracting.  

A 48.9 level for April is the worst in a year and the 4th consecutive month of declines as demand faltered and deflationary pressures persisted.  That is TERRIBLE news – unless, of course, you are an investor in the top 1% - in which case this means China is likely to throw more money at the problem, which will allow you and the companies you invest in to grab their share and keep acting like everything is fine for another quarter.  

The latest indication of deepening factory woes raises the risk that second-quarter economic growth may dip below 7 percent for the first time since the depths of the global crisis, adding to official fears of job losses and local-level debt defaults.  "China's manufacturing sector had a weak start to Q2, with total new business declining at the quickest rate in a year while production stagnated," said Annabel Fiddes, an economist at Markit.  "The PMI data indicate that more stimulus measures may be required to ensure the economy doesn't slow from the 7 percent annual growth rate seen in Q1."

The overall new orders sub-index dipped to 48.7 in April, the sharpest contraction in a year. That suggested a marked deterioration in domestic demand, as new export orders showed tentative signs of improvement.  Both input and output prices declined for a ninth month, while manufacturers shed jobs for an 18th month, auguring poorly for an economy that grew at its weakest rate for six years in the first quarter.  An official survey released on Friday showed China's factories struggled to grow in April as domestic and export demand remained weak.
And it's not just China.  South Korea's PMI came in at 48.8, also contracting and the New Zealand commodity price index fell 7.4% vs up 4.6% expected by leading Economorons.  Fench Manufacturing was 48 but Germany was 52.1 and Europe overall was 52.1, so a better story over there.

We'll get our own Factory Orders data at 10 this morning and I don't think it's going to be good because they scheduled Chicago Fed Dove Evans to speak at noon, followed by San Francisco's Dove Williams at 3pm.  The main focus for the week will be US Employment and Productivity – any sign of wage inflation could push the Fed to act sooner, rather than later.  

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