Yuan Forwards Drop With Swaps as Factory PMI Signals Contraction

China’s yuan forwards and benchmark interest-rate swaps fell as a drop in a gauge of factory activity to the lowest since 2009 fueled concern an economic slowdown is worsening.

The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics was at 47.1 for August, indicating a contraction and falling short of the median estimate of 48.2. The central bank is likely to cut interest rates and reserve ratios sooner rather than later, ABN Amro Group NV strategist Roy Teo wrote in a note on Friday. China devalued the yuan last week and shifted to a more market-oriented exchange rate, sending the currency into the biggest decline in two decades.