Chinese Manufacturing PMI Contracts in December, U.S. Markit PMI Revised Lower
The Chinese Caixin Manufacturing Purchasing Managers’ Index declined to 49.7 in December from 50.2 in November. This is the first time in 19 months that this manufacturing PMI for China has contracted. Measures for both new orders and new export orders declined in December. According to the CEBM Group – a subsidiary of Caixin – the contraction in new orders and new export orders is due to weaker domestic demand and trade tensions between the U.S. and China.
Meanwhile, the final reading on the December Markit U.S. Manufacturing PMI was 53.8, down slightly from the initial estimate of 53.9. The PMI index is still well above the 50.0 breakeven between expansion and contraction, but is currently at a 15-month low. According to IHS Markit, the decline was due to a weaker increase in new business and the softest expansion in output since September 2017. Furthermore, the rate of job creation fell to an 18-month low, in spite of a further rise in backlogs. Finally, optimism about the outlook weakened to the lowest level since October 2016. Recession fears have risen substantially as global equity markets have plunged, but today’s economic data is still in the economic slowdown category.
U.S. stocks are down this morning primarily on the disappointing Chinese economic data. Though equities are bouncing off this morning’s lows as bargain hunters start to buy some of the most beaten down sectors. The Dow and the S&P 500 are down 0.13% and 0.32% respectively, while the NASDAQ is up 0.20%. Losses in the S&P 500 today are led by energy, financials and communications stocks.
Treasury yields are mixed across the curve this morning, rising on the short-end but falling on the long-end. The 10-Year Treasury yield is currently at 2.672 – down 1.3 basis points from Monday’s close. The 2-10 Treasury spread is 16.5 basis points – down 3.3 basis points from Monday’s close. The futures market probability of another Fed funds rate hike in March is 1.0% this morning, down from 3.4% on Monday.
The U.S. dollar is rising against the major currencies today. The Bloomberg dollar spot index is up 0.38% from yesterday’s close but is down 0.72% over the last month. The U.S. dollar is advancing the most against the euro, British pound and Australian dollar today.
|Scott Anderson, Ph.D.
Executive Vice President
Bank of the West Economics