Market Overview

China HSBC Flash Manufacturing PMI Shows Contraction for Eighth Consecutive Month, Lowest in Seven Months


According to HSBC, the Chinese manufacturing sector continued to contract in June. The Chinese HSBC Flash Manufacturing PMI printed at 48.1. Any reading below 50 signals contraction. The previous reading was 48.4, so the manufacturing sector actually contracted at a faster pace than last month.

Slowing growth in China is bad for global GDP growth. As the second largest economy continues to slow, it seems as if European recessions are affecting China, given that the Eurozone is China's largest trading partner.

Manufacturing PMIs are largely correlated with GDP growth. This reading signals that GDP growth may be likely to continue to slow and hoover near 8.5-9% by the end of the year, as compared to the 11+% that was experienced in the wake of the fiscal stimuli in 2008 and 2009. Slowing global growth should weigh on markets around the world, with China-exposed markets such as Australia suffering the most. Overnight, Australian stocks lagged on fears of Chinese growth. Australia has lots of large miners due to its rich deposits of copper and other minerals, so a slowdown in China equates to lower copper demand and thus lower copper stock prices.

The AUD/USD, perhaps due to its links to copper exports, and also partially on the Aussie dollar's consideration as a growth currency, traded down heavily. This pair largely tracks sentiment over Chinese growth and is a liquid, easy way for traders to express opinions on Chinese growth. If traders expect China to continue to slow or even to just muddle along at current levels, being short the currency pair may yield positive results. Also being short copper is a good play on a continued slowdown in China.

There are also some stocks that are China-exposed that traders could look to short if they believe in the bearish Chinese thesis. Yum! Brands (NYSE: YUM) has expanded heavily in China, and might be vulnerable to a slowdown.

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