China Manufacturing PMI At Lowest Since March 2009; Market Response 'Bad Is Good' So Far

Tyler Durden's picture

AUDJPY is getting smacked hard in this evening's admittedly thin trading given the US holiday. China's double-whammies of PMI data (both official and HSBC versions - with the latter revised lower from Flash to its lowest level since March 2009) and some weak Aussie retail sales data is weighing very heavily on the critical carry trade pair. S&P 500 futures traded down in line with AUDJPY from Friday's close but once the China PMI came as weak as it was so the 'Good is Bad', the PBoC have to do something crowd started buying and dragged ES up a few points. Juxtaposing these dismal macro data was a better than expected China Services PMI and Aussie manufacturing index - as the Schrodinger 'economy is good and bad' headlines continue to confound. For the 'bad-is-good' crowd who see stimulus as the solution, we offer two words 'Steel over-capacity'.

 

The last time HSBC and Official Manufacturing PMIs were sub-50 was in Nov 11 - right before the last coordinated central bank intervention (but energy and food prices were dramatically different then). This is the lowest HSBC PMI since March 2009...

 

S&P 500 futures fell in line with AUDJPY's weakness but have diverged since China PMI printed so weak - now the market reprices on further central-planning help implied by the dismal data...

sigh...

With markets thin and no Treasury market 'police' to control the tom-foolery this evening, we can onlyt imagine where this ends but for now AUDJPY is our guide.

 

Perhaps this must-read story from Reuters will color those stimulus-hunters' opinion a little!!

China's banks are coming after the country's steel traders, hauling executives into court to chase down loans that some traders said they didn't initially need and can't now repay.

 

The heavy push to recover the loans is another sign of strain on China's financial system at a time when the country's leaders are contemplating another round of stimulus to boost the economy, and when banks are worried about bad debts piling up.

 

The battle between the banks and steel traders also exposes flaws in the 4 trillion ($629 billion) stimulus round in 2008, and offers a warning to those calling for pumping more money into the system. At that time, Chinese banks threw money at the steel trade - a crucial cog in supplying the country's massive construction and infrastructure growth.

 

But those steel loans, after offering a quick fix, became excessive, poorly managed, or a combination of the two. Government officials insisted more money was needed to prop up the industry. Steel executives said the money flow was too heavy, and they had to put the money to work in real estate and the stock market.

 

"After the financial crisis, when the government released its stimulus, banks begged us to borrow money we didn't need," Li Huanhan, the owner of Shanghai Shunze Steel Trading, told a judge at a recent hearing. "We had nothing to do with the money, so we turned to other investments, like real estate." 

 

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Charts: Bloomberg