Market commentators and analysts writing for the likes of the FT, Bloomberg and Reuters may want to try writing an economic news story with regards to weak data without ‘blaming’ Europe..”Oh, I see China’s economy has expanded at it’s slowest rate for two years, that’ll be those pesky Europeans and their banking crisis again..” is the latest accusation.
China’s economy only grew 9.1 percent in the third quarter compared to the year earlier, the slowest pace since 2009, driving equities lower. The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and followed a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing earlier today. Asia’s benchmark stock index fell as much as 2.4 percent after China’s growth was limited by tighter credit and weaker demand from Europe and the USA. A slowdown in the pace of China’s expansion, which remains five times that of the U.S., may help Premier Wen Jiabao to tame inflation currently above the government’s target.
Could it be that China’s growth is not similar to that of our ever expanding Universe and cannot defy the laws of physics or economics? In our mutually beneficial and globalised economy at some stage the music simply has to stop. Where are China’s new markets for their goods and services? Whilst they are undoubtedly an economic powerhouse the main benefit they provide to the West is a never ending supply of cheap goods due to incredibly cheap and exploited labour.
If Apple didn’t pay Chinese wages to manufacture and be the hub of distribution for their products, but still wanted to keep a cash pile of $75 billion, then the cost of an iPad would rise from circa £500 to over £2000. To ‘fuel’ their manufacturing China needs the raw materials and fossil fuels in huge amounts, directly increasing the cost of finite resources for all. Economic powerhouse it may be but a miracle it isn’t and it really ain’t ‘rocket science’ to figure out how they ‘do it’ or why at some stage the music will stop in the globalised game of musical chairs. The average salary in China is circa $1500, the country is the world’s second biggest exporter, but the world’s third biggest importer…
The news that UK inflation has risen to 5.2% did not come as a total surprise to the markets this morning. This matches the record high in September, perhaps a price that Bank of England policy makers are willing to pay in order to combat the threat of another recession. Consumer prices rose 5.2 percent from a year earlier, compared with 4.5 percent in August, the Office for National Statistics has revealed. This figure matched the data in September 2008, the highest since comparable records began in 1997.
The median of 35 forecasts in a Bloomberg News survey was 4.9 percent. Bank of England Governor Mervyn King said earlier this month that consumer-price growth will probably peak in September and slow “sharply” in 2012. If it is predicted to slow sharply in 2012 then that could be Sir Mervyn ‘code’ for “a double dip recession is in the bag and you can take that to the bank”.
Meanwhile France’s Aaa credit rating is under close scrutiny and Sarkozy is unlikely to be able to deflect any more attention to the gravity of their singular crisis by having another meeting crammed in between the next scheduled two. The major French banks are under intense pressure, French banks’ shares have continued to crash over the past four trading days, BNP Paribas, the biggest of the nation’s lenders, dropping more than 17 percent and Societe Generale down almost 16.9 percent amid heightened concern they would be downgraded along with the government.
German investor confidence has fallen to the lowest level in approx. three years as Europe’s debt crisis threatens to infect banks and curb economic growth. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 48.3 from minus 43.3 in September, the lowest score since November 2008. Economists expected a drop to minus 45, according to the median of 39 estimates in a Bloomberg News survey.
The Nikkei closed down 1.55%, the Hang Seng closed down 4.23% and the CSI down 2.8%. The ASX 200 closed down 2.07%. Its main market, China, experienced less than predicted growth figures. The European bourses are down circa 1% across the board, the STOXX is down 1.01%, the FTSE is down 0.95%, the CAC is down 1.71% and the DAX is currently down 0.42%. The equity future for the SPX index is currently down 0.50%. Brent crude is down $57 a barrel.
The euro weakened in Asia/Pacific trade and in the London session due to Moody’s stating that France’s top credit rating is under pressure, adding to concern European leaders will find it difficult to resolve the region’s debt crisis. The currency fell for a second day versus the dollar and the yen as the renewed slide in European stocks continues. The yen and dollar strengthened versus most major counterparts as speculation Europe’s woes will slow global growth spurred investor appetite for safer currencies and assets. Asian currencies weakened, lead by the Malaysian ringgit and Philippine peso due principally to a Chinese report showing economic growth slowed in China to the lowest level in two years.
Economic Data Releases
13:30 US – PPI September
14:00 US – TIC Flows August
15:00 US – NAHB Housing Market Index October
Of the economists surveyed by Bloomberg, the median consensus for PPI for the month stood at 0.20% from a previous figure of 0.00%. For the year this stood at 6.40% from 6.50% previously. PPI excluding food and energy is expected to be 0.10%, month-on-month and year on year this was predicted to be 2.40%, which remain unchanged from the previous release. The NAHB is an index based on a sample of home builders that represents home sales and future building expectations. A Bloomberg survey of analysts predicted 15 from the previous month’s figure of 14.