Global Manufacturing Collapses To Worst Levels Since Mid-2009, Markets "Shrug It Off"
News from last night out of China, coupled with early morning news from Europe confirmed what many speculated: namely that global manufacturing is now in a toxic spiral and absent another stimulus kick from various monetary and fiscal authorities there is no catalyst on the horizon to put the global economy into second gear. As Reuters observes, factories in Asia and Europe all but stagnated in July, according to business surveys that showed the weakest rates of growth since major industrial powers were struggling through the 2009 recession. While stock markets rose on signs of a last minute solution that would avoid a U.S. debt default, manufacturing purchasing managers indexes (PMIs) provided the latest evidence of a slowing global economy. The euro zone manufacturing PMI, which gauges the activities of thousands of businesses, fell to 50.4 in July from 52.0 in June -- its worst showing since September 2009 and barely above the 50 mark dividing growth and contraction. Perhaps more worryingly, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6. Following Friday's horrendous GDP and Chicago PMI readings these are hardly a surprise. Needless to say, the reverse decoupling thesis will be tested once again today after the July ISM is released with consensus looking for a 54.9 print, and Zero Hedge looking for number just a tad above 50. But none of this matters. As Bloomberg's James Halloway points out, "Markets are for now shrugging off Friday’s poor U.S. GDP report, softening PMI prints in China and Germany, contractionary PMI readings for Ireland, Spain, U.K." One couldn't have put the idiocy of the market any better. Oh, and did we mention there is actually still no deal on the debt ceiling. It is merely priced in. As was Tarp 1 before the vote, leading to the biggest then historical collapse in the Dow once the market realized it had gotten ahead of itself. Deja vu coming up?
More from Reuters on what really matters.
In Germany, the euro zone's key growth engine in the recovery thus far, manufacturing growth fell to a 21-month low after new orders contracted for the frist time in more than two years.
"If you're looking at Germany, and if you're looking at the trends over recent months, it does seem as though sentiment in the euro zone has turned down," said Mark Miller, global economist at Lloyds Banking Group.
Miller outlined the difference between the slowdown in China -- which he said was growth responding to a series of interest rate and bank reserve requirement hikes -- and Europe, where economies are close to stall speed.
In some cases, like Greece, they are already contracting.
Even in the UK, which so far has been shielded from the crisis gripping the euro zone, the manufacturing PMI fell to 49.1 from 51.4 in June -- the first time below the 50 mark since the country was in recession two years ago.
"The UK is going through more than just a little local difficulty," said Peter Dixon, economist at Commerzbank.
"You've got a slowdown in global economy and a fall-off in domestic demand, and that's a pretty toxic combination."
While the decline in the UK PMI was worrying, the likes of Spain and Ireland saw contraction among factories only deepening in July.
Emerging market are also taking a hit.
Indian manufacturing growth slowed in July for the third month in a row. The HSBC PMI dropped to 53.6, from 55.3 in June, the lowest level since November 2009.
New export order growth in China, the world's biggest exporter, hit its lowest level in 17 months, the official survey showed.
But HSBC said new export orders in India fell in July at their fastest pace in 29 months and in Taiwan, home to the world's two biggest contract computer chip makers, they fell markedly and for the first time in nine months.
"There is still a lot of uncertainty about how global demand will hold up," said Vishnu Varathan, economist at Capital Economics in Singapore.
Many economists prefer to describe China's economic growth as a slowdown rather than slump. But some say Beijing is treading an increasingly fine balance between fostering growth and fighting inflation, especially as its monetary policy tightening campaign runs into its 10th month.
Bucking the trend, South Korean manufacturing growth accelerated for the first time in seven months in July and new export orders also picked up.
So yeah, aside from the whole global "toxic combination" and economic implosion thing, buying stocks due to the fact that America is not bankrupt surely sounds like a brilliant idea.