China’s Manufacturing Recession Keeps Markets Under Pressure


Global stock and energy markets were under pressure on Monday after a benchmark purchasing managers’ index showed China’s manufacturing sector contracted sharply in January, raising red flags about the health of the world’s second-largest economy.

China’s National Bureau of Statistics reported on Monday that manufacturing activity contracted at its fastest pace in almost three-and-a-half years in January. The official purchasing managers’ index (PMI) stood at 49.4 in January, down from 49.7 the previous month and below the 50-point mark that separates expansion from contraction.

A median estimate of analysts polled by Reuters predicted a slight decline to 49.6.

January was the sixth consecutive month China’s manufacturing sector had contracted, reflecting its aggressive capacity reduction over the past few years.

The NBS also reported a deceleration in the country’s services sector in January. The official non-manufacturing PMI fell to 53.5 in January from 54.4 in November.

Chinese stocks traded sharply lower on Monday, with the benchmark Shanghai Composite falling 1.8%. The Shanghai Shenzhen CSI 300 closed down 1.5%.

In Hong Kong, the Hang Seng Index dropped 0.5%.

Meanwhile, Japanese stock markets continued to advance on the momentum of the Bank of Japan’s surprise rate cut on Friday. The Nikkei 225 surged 347 points or 2% for the day.

Fears about a protracted slowdown in China weighed on oil prices at the start of the week. US-traded West Texas Intermediate (WTI) crude for March delivery slipped $1.31 or 3.9% to $32.31 a barrel on the New York Mercantile Exchange. Global benchmark Brent crude also fell $1.06 or 3% to $34.93 a barrel on ICE Futures Europe.

Sliding oil prices put a lid on the advance in European stock markets, which had rallied sharply at the end of last week. The Euro Stoxx 50 Pr was trading down 1.4% in midday trading. London’s FTSE 100 and the German DAX were each down more than 1%.

American stock futures were also down across the board, indicating a volatile start to New York trading.

In US data, consumer spending was unchanged in December, but income rose 0.3% after a similar gain in November. A rise in personal income helped push savings to their highest level in three years.

US consumer spending increased 3.4% in all of 2015 after rising 4.2% the previous year. The US economy as a whole expanded 2.4% in 2015, unchanged from the previous year, government data showed on Friday.