China PMI Contracts Stocks Hesitate

As China data today confirmed a continued slowing of the economy and equity markets hesitated, we map out an approach to the current predicament.

US PCE Inflation continued to moderate nicely in June and as the final piece of the puzzle to confirm the Federal Reserve is most definitely on hold, it fitted well.

US stocks were buoyed by this data and the upward pressure persisted.

Still, stocks remained in their range of the past week. Again highlighting the point being made here that despite some rather major historic bullish news, the incredible bull run of recent months is looking a tad tired.

US stocks are up over 20% from their lows, but still below the previous high, when we went aggressively bearish, in January 2021. Is that previous high assailable on this run? This powerful up-trend?

Throughout last week I was emphasising the importance of the Federal reserve’s last rate hike, Q2 GDP and the PCE outcome. All were clearly and emphatically bullish. Yet, no new high since Thursday. In fact, the US500 closed on Friday only near the highs of seven trading days ago.

China’s economy continues to slow, and it is a big worry!

We should be seeing a soft landing by now, but the airport just isn’t in sight yet?

China’s Manufacturing PMI contracted for the fourth straight month, coming in at just 49.3 in July. For the world’s largest and most significant manufacturer to be seeing sustained manufacturing contraction, even with the supposed lift of the post lockdowns boom, should be of great concern to everyone.

This contraction in manufacturing, unfortunately, also points to a continued slowing in Western economies demand generally, and indeed the global economy as a whole.

We should not be interrupting this data as a purely China phenomenon or look at it in isolation. We know US manufacturing has been in recession for some time. It is reasonable to now say that the manufacturing sectors in the world’s two largest economies are currently both in recession. 

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