Chinese & German PMIs Drop in April, Raises Fears of Summer Swoon

New reports overnight showed that the Chinese and German economies continued to weaken in April following disappointing data from March globally. The data raised fears of another summer swoon in the economy, which could weigh on financial markets.

The Flash, or initial estimated reading of the China HSBC Manufacturing PMI, declined to 50.5 from 51.6 in March on expectations of a decline to 51.4. Although markets had priced in a decline, the drop was worse than expected. Given the recent hawkish stance from the PBOC, it is likely that authorities in China are willing to accept slightly slower growth in the near term.

Also, the Flash PMIs for Germany's manufacturing and services sector both showed continued weakness in April after a weak March. The Flash German Manufacturing PMI declined to 47.9 from 49.0 in March on expectations of a 49.0 reading while the Services PMI declined to 49.2 from 50.9 on expectations of a reading of 51.0. Both reports showed contraction in the month and unexpectedly so in the services report.

The data raises fears that the global economy is set to see another summer swoon this year, which could drag financial markets lower. Notably in the Chinese report, the trade data was weak, indicating that global weakness, and not necessarily domestic woes, were the reason for the slowdown. This is interesting as the eurozone is China's largest trade partner and the continued slowdown across Europe, especially in Germany, could be a key cause for the Chinese weakness.

Chinese shares traded sharply lower on the data overnight as investors feared a slowdown in growth after disappointing first quarter growth figures were released last week. The Shanghai Composite Index fell 2.57 percent and the broader CSI 300 Index declined 3.21 percent on growth fears. Also, the Hang Seng Index of shares traded in Hong Kong declined 1.08 percent.

German shares actually traded higher in the European session but lagged other markets as rumors of an ECB rate cut outweighed the fears of a slowdown. The German DAX rose 0.67 percent in midday trading but the index is still down almost five percent in the past month.

Commodities sold off overnight and actually have bounced off of session lows but remained sharply lower following fears that demand will decrease for commodities as global growth slows into the summer. WTI Crude futures declined 0.86 percent to $88.42 per barrel while Brent Crude futures declined 1.03 percent to $99.36 per barrel. Copper was also weak overnight on growth fears.

Looking forward, the German IFO Business Climate Index, a broad measure of business expectations and sentiment, is expected to be released early Wednesday and should help to alleviate fears if it is a strong report. Next week, the final PMIs for China and Germany are expected as well as German unemployment data and the ECB's rate decision. These events could serve to confirm fears or give the bulls another with which they can catalyst bolster markets.