👀 Ones to watch: The MOST undervalued stocks to buy right nowSee Undervalued Stocks

GLOBAL ECONOMY-Global recession fears grow as manufacturing shrinks across Asia

Published 06/03/2019, 01:10 PM
Updated 06/03/2019, 01:20 PM
GLOBAL ECONOMY-Global recession fears grow as manufacturing shrinks across Asia
US10YT=X
-

* Activity contracts in Japan, S.Korea, Malaysia, Taiwan
* China Caixin PMI 50.2, but official gauge 49.4
* Trade tensions flare up; global economy could face
recession
* Weak economy may spark c.bank "race to the downside" on
rates

(Adds graphics, India PMI)
By Marius Zaharia
HONG KONG, June 3 (Reuters) - Factory activity contracted in
most Asian countries last month as an escalating trade war
between Washington and Beijing raised fears of a global economic
downturn and heaped pressure on policymakers in the region and
beyond to roll out more stimulus.
Such growth indicators are likely to deteriorate further in
coming months as higher trade tariffs take their toll on global
commerce and further dent business and consumer sentiment
leading to job losses and delays in investment decisions.
Some economists predict a world recession and a renewed race
to the bottom on interest rates if trade tensions fail to ease
at a Group of 20 summit in Osaka, Japan at the end of June, when
presidents Donald Trump and Xi Jinping could meet.
In China, Asia's economic heartbeat, the Caixin/Markit
Manufacturing Purchasing Managers' Index (PMI) showed modest
expansion at 50.2, offering investors some near-term relief
after an official gauge on Friday showed contraction.
The outlook, however, remained grim as output growth
slipped, factory prices stalled and businesses were the least
optimistic on production since the survey series began in April
2012.
PMIs were below the 50-point mark separating contraction
from expansion in Japan, South Korea, Malaysia and Taiwan, came
below expectations in Vietnam and improved slightly in the
Philippines.
"The additional shock from the escalated trade tensions is
not going to be good for global trade and if demand in the U.S.,
China and Europe continues to soften, which is very likely, it
will bode ill for Asia as a whole," said Aidan Yao, senior
emerging markets economist at AXA Investment Managers.
"In terms of the monetary policy response, almost everywhere
the race is going to be to the downside."
Central banks in Australia and India are expected to cut
rates this week, with others around the world seen following
suit in coming weeks and months. HSBC economist Jingyang Chen
said the PMI figures could mean "Beijing will double down on
easing for the private corporate sector."
Euro zone activity is expected to shrink as well, while U.S.
manufacturing is expected to grow steadily, although economists
expect the global malaise to eventually feed back into the U.S.
economy. Fed funds rate futures 0#FF: are now almost fully
pricing in a rate cut by September, with about 50 percent chance
of a move by July 30-31.
J.P. Morgan expects the Federal Reserve to cut rates twice
this year, a major change from its previous forecast that rates
will stay on hold until the end of 2020.
For an interactive graphic of Asian interest rates, click on
http://tmsnrt.rs/1U5hc2W

DIVERTED TRADE FLOWS
In India, where growth depends largely on domestic demand,
the manufacturing sector expanded at its quickest pace in three
months, with sentiment boosted by a dramatic election win by
Prime Minister Narendra Modi. But
further economic reforms will be crucial, as highlighted by
Friday's data showing the economy growing at its slowest pace in
more than four years in January-March. The expansion in Philippines reflects strong domestic demand
and less reliance on trade, while for Vietnam it is a reflection
of a diversion of business and trade flows due to the tariffs.
A Societe Generale analysis shows that in industries
affected by the implemented tariffs -- such as capital goods and
some electronics -- Germany, Mexico, South Korea and Taiwan have
each won more U.S. business.
Vietnam has been the biggest beneficiary in industries where
tariffs are a threat, such as smartphones, and is also seeing
investment from companies moving production out of China.
"Southeast Asian countries, especially Vietnam and Thailand,
are often cited as the top choices, and indeed they look ready,"
Societe Generale analysts said in a Friday note.
Ominously, South Korean exports - seen as a bellwether of
world growth - fell 9.4% in May, worse than a median forecast
for a 5.6% decline, data released on Saturday showed.

RECESSION FEARS
The trade conflict between China and the United States
suddenly escalated last month when Trump raised tariffs on
hundreds of billions of Chinese imports to 25% from 10% and
threatened levies on all Chinese goods.
If that were to happen, and China were to retaliate, "we
could end up in a (global) recession in three quarters," says
Chetan Ahya, global head of economics at Morgan Stanley.
Washington's new tariff threats against Mexico last week
also contributed to global recession fears, with stock markets
tumbling around the world. The 10-year U.S. Treasuries yield
fell to 2.121% US10YT=RR , a nadir last seen in September
2017. MKTS/GLOB
Over the weekend tensions flared again between China and the
United States over trade, technology and security.
China's Defence Minister Wei Fenghe warned the United States
not to meddle in security disputes over Taiwan and the South
China Sea, while acting U.S. Defence Secretary Patrick Shanahan
said Washington would no longer "tiptoe" around Chinese
behaviour in Asia. On Friday, China also threatened to unveil an unprecedented
hit-list of "unreliable" foreign firms, groups and individuals
that harm the interests of Chinese companies. That came after
Washington last month put Huawei HWT.UL on a blacklist that
effectively blocks U.S. firms from doing business with the
Chinese telecoms equipment giant.
"We take this seriously. It means that the trade war has not
only become a technology war but also a broad-based business
war. There will be more retaliation actions from China,
especially for the technology sector," Iris Pang, Greater China
economist at ING, said, adding that the tensions over Taiwan
were a background worry rather than a pressing concern.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Global PMI activity and trade https://tmsnrt.rs/2WzqeyD
Manufacturing activity in Asia https://tmsnrt.rs/2WEzX6W
GRAPHIC-Asian interest rates - Interactive http://tmsnrt.rs/1U5hc2W
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.