China’s Circuit Breakers Thrown

Today’s weak factory sector data out of China reminds us of the market’s persistent China growth worries. The December PMI survey by Caixin Media and Markit came in weaker than expected at 48.2 vs. 48.6 in November, the 10th straight month of a sub-50 reading from this key private-sector measure.

This follows the official Chinese government’s PMI measure that showed a modest improvement for the month, but remained below the ‘50’ mark. The PMI data raises doubts about the efficacy of fiscal and monetary policy measures aimed at stabilizing the economy’s growth profile.

A new circuit-breaker system for the Shanghai stock market that went into effect today got triggered by the sell-off following the weak PMI survey and depreciating currency, with the Shanghai Composite ending the session down -6.8%. All major Asian markets were down following the Shanghai sell-off as are most of the European markets, with Germany particularly hit hard given its above-average China exposure.

Today’s turmoil brings back memories of last summer when global markets were similarly hit hard by a sell-off in Chinese stocks. In fact, part of the reason why the Fed held back on announcing lift-off at its September meeting was such China-centric market uncertainty. This is a good reminder that we may be in a New Year, but many of the issues that we will be dealing with will be carry overs from the old year.

Happy New Year!

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