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 China's factory sector shrank at its fastest rate in almost
6-1/2-years in August, a private survey showed, pushing investors
who fear China's sagging economy will translate into slower global
economic growth to take refuge in gold and bonds.
World markets had already been on edge after China's surprise
devaluation of the yuan last week and a 33 percent fall in its stock
markets since mid-year.
"Uncertainty about China growth is now the main swing factor in
markets," said Tim Condon, an economist at ING Group in Singapore.
"Today's data reinforced the doubts about global growth."
The preliminary Caixin/Markit China Manufacturing Purchasing
Managers' Index (PMI) stood at 47.1 in August, well below a Reuters
poll median of 47.7 and down from July's final 47.8.
It was the worst reading since March 2009, in the depths of the
global financial crisis, and the sixth straight one below the
50-point level, which separates growth in activity from contraction
on a monthly basis.
The downdraft from China is particularly rattling economies of its
trade-reliant Asian neighbors.
South Korea, which counts China as its biggest trading partner, said
on Friday its exports slumped and Taiwan reported on Thursday its
export orders in July fell more than expected.
And while a similar factory survey in Japan pointed to a pick-up
there due to stronger domestic demand, policymakers in Tokyo are
keenly aware of the dangers if China slows further.
Following three decades of fast economic growth, Chinese authorities
have had limited success in shoring up activity this year despite
four interest rates cuts since November.
Last week's shock 2 percent devaluation in the yuan <CNY=CFXS> and a
slump in Chinese shares over the summer have unnerved investors
further.
The yuan has slid nearly 3 percent since its Aug. 11 devaluation, a
fall some analysts say is too modest to boost Chinese exports but
notable enough to raise fears of competitive currency devaluations
between governments.
The speed with which China's economy is losing steam has led to
analysts warning the government may struggle to meet its growth
target of 7 percent this year if it doesn't ratchet up policy
support. China's factory output, retail sales and investment all
disappointed in July.
"While we do not have enough information to assess all the details
of official releases, we share the view that real GDP growth
probably slowed more than reported in recent quarters," said Wei Yao
at Societe Generale.
Stock markets around the world tumbled towards their worst week of
the year on Friday as the weak Chinese data sent investors scurrying
to safe-haven assets.
EUROZONE ACTIVITY EDGES UP, WORRIES LINGER
A relatively upbeat euro zone survey, one of the bloc's earliest
monthly economic indicators, suggested the European Central Bank's
massive bond-buying program and a weaker euro may be finally having
an impact on activity.
Markit's Composite Flash PMI, rose to 54.1 this month from July's
53.9, confounding expectations in a Reuters poll for a modest dip to
53.8.
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The headline index has been above 50 since mid-2013 and Markit said
the PMI suggested third-quarter GDP growth of 0.4 percent, matching
the prediction in a Reuters poll last week.
"It points to weak growth that will do little to erode the spare
capacity in the region," said Jennifer McKeown at Capital Economics.
"We still see euro zone growth slowing in the coming months as
earlier boosts from falling inflation and the euro's depreciation
fade, particularly if renewed uncertainty surrounding the Greek
election damages confidence."
Adding to uncertainty for investors following a brief period of
relief after Athens avoided default and signed a third bailout to
stay in the euro zone, Greek Prime Minister Alexis Tsipras resigned
on Thursday.
U.S. FACTORY ACTIVITY SLOWS
Growth in the U.S. manufacturing sector slowed unexpectedly to its
weakest pace in almost two years in August, according to Markit.
The preliminary U.S. Manufacturing PMI fell to 52.9 in August, its
lowest since October 2013, from a final July reading of 53.8.
Economists polled by Reuters forecast an August reading of 54.0.
Job creation also slowed, with the index at 52.2, its weakest since
July 2014, down from 53.8 in July.
"August’s survey highlights a lack of growth momentum and continued
weak price pressures across the U.S. manufacturing sector, which
adds some fuel to the dovish argument as policymakers weigh up
tightening policy in September," said Tim Moore, senior economist at
Markit.
"According to survey respondents, the strong dollar continued to put
pressure on export sales and competitiveness, while heightened
global economic uncertainty appeared to have dampened client
spending both at home and abroad."
Most analysts still expect the U.S. Federal Reserve to raise
interest rates this year, possibly as soon as September, though
minutes from the U.S. Federal Reserve's last meeting in July showed
policymakers discussed China, Greece's debt crisis and the weak
state of the global economy.
(Additional reporting by Koh Gui Qing, Choonsik Yoo, Stanley White
and Sam Forgione; Editing by Clive McKeef and Meredith Mazzilli)
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