A Chinese manufacturing gauge signaled the first contraction in six months in January as companies cut jobs and credit-market stresses damped confidence in the world’s second-biggest economy.
A Purchasing Managers’ Index fell to 49.5 from 50.5 in December, HSBC Holdings Plc and Markit Economics said in a statement today. The reading compared with the median 49.6 estimate in a Bloomberg News survey of 14 economists. A number below 50 indicates contraction.
The Australian dollar and copper fell as the survey showed manufacturers eliminating jobs at the fastest rate in almost five years. Credit Suisse Group AG this week cut its first-quarter growth forecast for China, citing anecdotal evidence of “surprisingly slow” retail sales ahead of the week-long Lunar New Year holiday, which starts tomorrow.
“China’s growth momentum will continue to weaken in coming quarters,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said in a note. “The market continues to underestimate the degree of the ongoing slowdown and further negative surprises are in stock as the year progresses.”
The MSCI Asia Pacific Index (EC11CHPM) of stocks was down 1.6 percent at 12:48 p.m. in Tokyo after the U.S. Federal Reserve trimmed monetary stimulus. The Australian currency dropped 0.1 percent to 87.32 U.S. cents. The Shanghai Composite Index was 0.5 percent lower at the 11:30 a.m. local-time break.
Signs in the PMI of a contraction don’t indicate that industrial production is shrinking on an annual basis. Factory output rose 9.7 percent in December from a year earlier, the slowest pace in five months, according to statistics bureau data released Jan. 20. The economy expanded 7.7 percent in the fourth quarter.
The preliminary reading for the HSBC PMI of 49.6, released on Jan. 23, contributed to a global decline in equities, as investors reassessed the outlook for emerging markets amid the Fed’s plans to pare stimulus. U.S. central bank policy makers yesterday cut the pace of bond buying for a second straight meeting, citing improvements in the labor market and economy.
The National Bureau of Statistics and China Federation of Logistics and Purchasing release their own survey of manufacturing purchasing managers on Feb. 1. The gauge will probably fall to a six-month low of 50.5 from December’s reading of 51, based on the median estimate of analysts surveyed by Bloomberg.
An index of employment from HSBC and Markit was below 50 for the third straight month and showed the quickest reduction of payroll numbers since March 2009. The output subindex was the lowest in four months, while a gauge of new orders was weaker, with respondents citing fragile economic conditions, HSBC said.
Changes in the timing of the Lunar New Year holiday each year make seasonal adjustment of data less accurate, Capital Economics Ltd. said in a note today. At the same time, “such a large drop suggests that activity in the manufacturing sector has cooled,” Singapore-based economist Julian Evans-Pritchard wrote.
Tianjin FAW Xiali Automobile Co. (000927) said last week it will report a net loss of 430 million yuan ($71 million) to 530 million yuan for 2013. The Tianjin-based company cited declining production and sales at its holding company Tianjin FAW Toyota Motor Co. as the main reason of the loss.
Credit Suisse is forecasting growth of 7.3 percent in the January-to-March period, down from a previous projection of 7.7 percent, according to a report Jan. 29 yesterday. That would be the slowest quarterly pace since 2009, according to previously released government data.
Slower income growth and an anti-corruption campaign “appear to be biting into retail sales significantly” and investment has softened, Hong Kong-based economists Dong Tao and Weishen Deng wrote.
China this week averted the nation’s biggest trust default in at least a decade, a move that may reinforce investors’ belief in implicit guarantees and the government’s willingness to back risky products. China Credit Trust Co. started repaying investors in its 3-billion-yuan high-yield product, according to investors who accepted the bailout offer.
Borrowing costs remain elevated, with the benchmark seven-day repurchase rate at 4.98 percent today, according to a daily fixing compiled by the National Interbank Funding Center, compared with the month’s average of 4.7 percent.
China will struggle to maintain 7.5 percent economic growth this year and next year, Li Daokui, a former People’s Bank of China academic adviser, said last week at the World Economic Forum in Davos, Switzerland. He said that excessively fast declines in property prices could be a risk, while shadow banking isn’t a major threat.
HSBC’s survey is based on responses from more than 420 manufacturers and is weighted more toward smaller companies. The official PMI is based on questionnaires sent to about 3,000 companies.
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