Conclusion: After analyzing the recent spate of Asian economic indicators, we remain bearish on the intermediate-term slope of global growth and expect that to continue weighing on financial markets throughout. Moreover, Asia is forcing consensus to address the question: “Even if Santa Claus' sack is not filled with coal (a big "if"), what happens in January and beyond?”
Over the last few days, we’ve received a bevy of PMI reports out of Asia from varying sources. Needless to say, the bulk of the releases left a great deal to be desired in the direction of a forthcoming rebound in global growth – one of the primary factors determining the direction of Global Macro beta.
China, which consensus anchors on as an “engine of global growth” in times of improving global fundamentals or speculation around monetary easing, has taken a backseat to Europe in recent weeks – conveniently alongside some fairly nasty economic data. Unfortunately, just because the Manic Media chooses to ignore bad data out of China doesn’t mean China ceases to exist.
To the tune of bad data, China’s services PMI joined its recently-released manufacturing PMI in contraction territory, falling to 49.7 in November from 57.7 prior. While an eight-point drop into contraction-mode seems meaningful, we are cautious to point out the risk in running with this data point as a super-negative indicator, as China non-manufacturing PMI is not seasonally-adjusted. That said, however, at 49.7, the Nov ’11 reading is the second-lowest November reading since the dataset began back at the start of 2007.
In addition to China, Hong Kong and Singapore, which remain Asia’s two most-sensitive economies to global growth, also showed some nasty deltas in their most recent PMI surveys as well (see aforementioned table). As demonstrated over the last two global growth cycles, Singapore and Hong Kong lead global GDP by 1-2 quarters, meaning we’d expect to see the sour data coming out of both economies confirmed by larger economies that are closer to the end of the supply chain (such as the U.S. and E.U.) on a 3-6 month lag. From a common sense perspective, that makes sense – Asia produces our orders and then ships them to us; we then stock the shelves and consume. Only someone hoping for Santa Claus would make this relationship out to be more complicated than that.
All told, we remain bearish on the intermediate-term slope of global growth and expect that to continue weighing on financial markets throughout. In this macro-driven market(s) it is wise to avoid fighting the Global Macro fundamentals!