Investors have had a bumpy ride the last few weeks, and markets continue to swing with volatility. The health of the world’s two biggest economies is the dominant headline around the world. In response, China has set the tone with an official manufacturing gauge slumping to a three-year low. Additionally, a U.S. factory report shows manufacturing, “expanded at the slowest pace since May 2013, contributing to the third-biggest drop in the S&P 500 Index this year.” Lastly, the MSCI Asia Pacific Index shows that Asian stocks have swung between 0.4 percent gains and losses of 1.1 percent.
Chinese stocks sunk by as much as 4.7 percent, before rebounding to a 0.9 percent gain. It closed the session at 0.2 percent lower. Traders speculate that state-backed funds have been propping up the market before a major upcoming military parade. The decline on Wednesday comes after the Shanghai Composite Index had its biggest two-month loss since 2008.
Monetary easing has failed to revive old growth drivers in China as well, as the factory gauge fell to its lowest level in three years. The official Purchasing Managers’ Index was 49.7 for August, down from 5 in July. Numbers below 50, “indicate construction, with small, medium and large enterprises all below that level last month.” The People’s Bank of China also lowered benchmark interest rates last week for the fifth time since November, allowing the yuan to devalue on August 11th to help bolster exports. However, the deepening factory gate deflation and slow external demand outside the U.S. markets means manufacturers still haven’t shown any sustained response to the monetary easing. However, Chinese markets are closed for the remainder of the week for holidays commemorating the end of World War II.
Meanwhile, the Japanese yen continues to bounce in and out of favor depending on the appetite for risk. On Tuesday, stock markets around the world sank but the yen rose against all 16 of its major peers. When sentiment improved on Wednesday though, it fell against every major currency except the South Korean won. Price swings among, “Group of Seven currencies, as measured by JPMorgan G7 Volatility index, have risen to the highest since April 2.”
In Europe, stocks rose as much as 0.8 percent at the open before giving up gains. Tuesday’s 2.7 percent slump saw 577 of Stoxx 600’s members dropping after weak Chinese and U.S. manufacturing data. The index plunged 10 percent since China devalued the yuan three weeks ago, and sunk 14 percent since hitting a record in April. The European Central Bank’s policy meeting in Frankfurt on Thursday is also cause for speculation.
The August manufacturing data from the U.S. was part of the European stock response. The data showed that manufacturing expanded at the slowest pace since May 2013 in August, in part because of weak demand from emerging markets. The Institute for Supply Management’s index fell to 51.1, lower than the Bloomberg survey median, from 52.7 in July. The dollar’s growth over the last year has made it tougher for U.S. producers to build up overseas sales—ultimately slowing hiring and production at plants. Factories did well with car sales and investments in new equipment, but record inventory building was an additional hurdle. Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York said, “It raises a warning flag about the outlook. We’re going to have an inventory adjustment and, on top of that, weak exports are going to remain a weight. We’ll see a period of time when manufacturing is soft.”
The August jobs report will be the last important economic release before the Federal Reserve convenes to discuss interest rates in two weeks. While market watchers continue to analyze the market correction and discuss volatility, talking to your financial advisor can help alleviate concerns. Call an expert at Apex Financial Advisors today to go over your portfolio and discuss ways to protect and grow your family’s wealth.