Brace yourselves! Unenjoyment number in the morning will be the icing on the cake!
China PMI Plunges Most In 28 Months, Reverts To HSBC’s Reality
Color us not stunned at all. China’s Manufacturing PMI finally reverted to the reality that HSBC’s Manufacturing PMI has been arguing for and fell for the first time in six months. The drop is the largest since February 2010. While still above 50 (though the lowest level of expansion in five months), or 50.4 technically, down from 53.4, and missing expectations of 52.0, it seems another engine of global growth just sputtered finally – as the real impact of a European depression and fiscally challenged US hit home.
And as a reminder, here is why unless “Europe is fixed” and quite soon, the situation will first get worse before it gets much worse:
People are worried that growth is slowing
If you think that everything is going to collapse (for example Europe’s economy completely imploding in a crisis that makes Lehman’s aftermath look like child’s play) all you’ll want to do is give your money to the one entity that has unlimited (thanks to the printing press) power to pay the money back.
This chart again isn’t perfect, but if you compare 10-year rates (blue line) with the VIX (a measure of market fear) you can see that they move together. (In this chart we’ve inversed the VIX, so that it goes down when it’s spiking).
So then let’s back up …
Yields have been collapsing furiously.
What does it mean?
Well it means that people are worried that growth is slowing (see: all the bad data out this morning), inflation is abating fast (oil is below $88/barrel these days) and people are FEARFUL (see: all of Europe). Thus we get the massive inflow of cash into Treasuries. It’s a cliché, but in times like this, people don’t care about making money. They just want to know that if they put their money somewhere, it will be there the next year or the next decade.
Futures are all red as hell
EURUSD is dropping sharply too